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Are Your Tenants Putting Your Investment at Risk by Using Airbnb?

Even the most conscientious landlord can’t control everything.

Much of the risk involved in investing in rentals is the unpredictability of the tenants.

One of the newest ways tenants are creating problems for Baltimore area landlords is by trying to make money from the fast growing startup Airbnb.

What is Airbnb?

Airbnb is a marketplace where people turn their residence into a hotel. Visitors go on the site, find a place they like and then pay money to Airbnb to stay at the residence for however many nights they agree to. Airbnb takes a cut and then gives the rental fees to the people who listed the residence.

Airbnb is part of the group of companies like Lyft and Uber that make up of the so-called “sharing economy.” The company only acts as a kind of middleman and escrow service. It is not a property management company. In fact, Airbnb may be opening landlords up to new liabilities.

 

Issues When Tenants Are Renting Out Your Property

You know how important the right tenant is to the success of your investment which is why you, or your Baltimore area property management company, should carefully screen each potential tenant prior to signing the lease.

Be sure your lease agreement with your tenants has a clause that either forbids them from subleasing the property or requires that you approve any sublease.

Airbnb causes issues for landlord in all of these areas.

If one of your tenants decides to list your property on Airbnb, they are putting you and your investment at risk. Airbnb is not screening the “guests” that are renting places on its site.

You won’t really know anything about who is going to be staying on your property. They could have serious criminal records. They could have other kinds of negative history. However, as long as their Airbnb account is clear and their credit card is good, they could be staying on your property.

If these “guests” are on your property and hurt themselves you may also be liable for their injuries. If they cause problems in the neighborhood or damage your property, you are stuck with the consequences of their actions.

Further, not only did you not get the chance to screen the visitors, but you also don’t get to keep the profit of their stay – your tenant who listed the property would.

When one of your tenants rents out your property for a few nights, they are subleasing the property. If they have not followed the rules in the lease, they may be in violation of the lease.

Additionally, subleases may not be covered by your insurance. Your tenants’ renter’s insurance certainly does not cover anything the Airbnb “guests” do. By subletting your property without your consent, your tenants may actually be voiding your insurance policy completely.

 

What Baltimore Law Says About Airbnb

Airbnb operates in a gray area in many cities and countries across the world.

The law tends to view Airbnb rentals like a hotel. This would mean that all tax and licensing requirements would have to me met. Airbnb has run into major problems in cities like San Francisco and New York over these issues.

In Baltimore, people who are renting out their own residence may be able to avoid being considered a hotel. Montgomery County has made a special effort to change its laws to accommodate short term rentals like those on Airbnb.

However, while a rental using Airbnb may or may not run afoul of city and county ordinances, if you have a strong lease agreement, the use of Airbnb almost certainly is a violation of that lease.

Baltimore and the State of Maryland want to make sure they get their tax money. If the authorities find that you knew, or should have known, about the way your property was being listed on Airbnb, you may be on the hook for the back taxes.

Even if your tenant only rents out the residence for three nights a month, the question for the courts could be whether or not that is enough time to be considered a sublease.

Even in cities and counties that wish to encourage Airbnb and the sharing economy, you still have the right to enforce the terms of the lease agreement. But, like all contracts, the more specific the language in the lease is the more protected you are.

 

How to Protect Your Investment Property

There are several actions you can take to avoid the risks Airbnb may pose to your investment.

  1. Put It in the Lease

The first thing you need to do is review the language of your lease agreement.

If the lease agreement has a clause about subleasing, does it clearly define what the term subleasing means?

Does it clearly define whether or not your rental is eligible to be subleased?

If you want to make sure your properties are not rented to strangers for even one night, make sure that is clear in the lease. Be sure to specifically mention Airbnb and other similar sites in the agreement to prevent any confusion or misinterpretation.

You should also make sure the lease is clear about the difference between a houseguest and a paying “guest,” like one from Airbnb. You also need to review the penalties for violating the sublease clause.

Because this can create such a large risk for you, you need to make sure the consequences of violating the lease outweigh the financial gain a tenant may get from breaking the clause.

  1. Check Your Insurance Policy Now

Every insurance policy is different.

While there are many standard clauses, because Airbnb is so new, your policy may not be specific about what is and is not covered in relation to those types of rentals.

Have a frank discussion with your insurance carrier about how you can mitigate the risk of a tenant bringing in people from websites like Airbnb.

  1. Take Immediate Action if Someone Violates Your Lease

When you think a lease breach has occurred, you should have a policy in place to act swiftly. Make sure that if you have a consistent method of dealing with lease violations for all tenants.

Depending on the circumstances, immediate legal action may be necessary. Your Baltimore area property management company will be able to walk you through the process and what you should expect going forward.

 

Conclusion

As a landlord, it’s important that you know who is staying in your rentals.

This doesn’t mean illegal surveillance or calling the residence every day. But, it does mean taking the proper precautions to prevent the misuse of your income property.

If you have a rental management company familiar with the local neighborhoods, they will take care of watching your property for you as part of their regular oversight.

You may also want to check from time to time to see if your properties are listed on the web as rentals. Spending a little time on Google will tell you if you already have a problem with unsanctioned activity on your property.

The most important thing you can do to protect your investment is to take immediate and consistent action every time there is a violation of the lease.

Airbnb can be very lucrative for people with residences in high tourist areas. This fits everything between Baltimore and Washington, D.C.

Enforce the terms of the lease, even if it means evicting a tenant that has always paid on time. If you don’t enforce the lease, you are giving tenants more incentive to put your investment at risk.