Hey, I'm new to real estate investing but spent many years watching my dad and uncles do many house flips, brrr's, and rent holds. However, the events that always stood out to me was how terrible some of the tenants could act and treat the property. Also, to get disruptive and non paying tenants evicted in NYC took almost a year. My first property will be nothing less than a 4-plex or Multi-family rental property. I'm leaning more towards using the Airbnb because of the more transient nature (so I won't need to deal with bothersome tenants for extended periods of time) than a traditional rental. Will I lose more money on a monthly income by doing this? Will I average more ROI? Is there a different process for filling taxes using Airbnb as income? Are there tax credits for transient rentals? Will I need to provide food for the guest? Please all and any insight on this matter will be appreciated.
I personally don't know the Airbnb market for New York but I'm positive with all the traffic in and out of there you could make a great deal of profit more than a traditional tenant. You wouldn't need to provide breakfast but you can do something small like having muffins or fruit available. I haven't seen too many people lose money on Airbnb but that is dependent upon your area. The best thing to do is to familiarize yourself with the local laws and make sure there won't be anything holding you back. As filing taxes goes I personally run everything through my LLC and I hear Airbnb will send you a 1099 at the end of the year. My CPA handles most of this for me.
If you live in the unit airbnb is great in NYC ..but for a multi I think there are rules against it...if you do a Google search they go more into detail...
@Brandon Raeburn , You will probably end up with higher returns through airbnb when compared to long-term tenants. Find out about local laws and regulations in the specific areas you are looking to invest. There are cities that prohibit and penalize the use of airbnb. In my experience, short term (airbnb) guests take better care of the units, mainly because they get reviewed by the hosts.
Regarding the tax treatment of short term rentals, if your guests stay in the property an average of 7 days or less, then the net income from this property is considered ordinary income and you will pay self-employment taxes. If your guests stay longer than 7 days, then it is reported on Schedule E (passive income) and no self-employment taxes are paid. Always make sure to subcontract any work related with the units (i.e. hire a cleaning person) and try not to provide breakfast, as this will turn the activity into ordinary instead of passive.
For a multifamily, as long as 80% of the units are rented on a long-term basis, then the income is considered passive, hence no SE tax involved.
The key is to know how much more revenue the short term rental will generate when compared to the additional tax implications that will result from going the short-term route.
Good luck in your search and let me know if I can ever be of assistance!
Hi Brandon this is something I was looking into as well since I'm in NYC. What I've found is that NYC makes short term rentals of 30 days or less illegal for 3 or more units unless there is a tenant staying in the unit with the renter. I think 2 family homes is what you might need to look into if you are planning on renting out the whole unit. Anyone correct me if I'm wrong.
@BenVargas @AnaGarcia @WillBert @MykaArtis
Thanks for the help guys, I knew there was rules that I overlooked. I won't go below my 4-family unit rule. I'll consult a real estate lawyer about the particulars and give you guys an update.
Yeah, @Brandon Raeburn as @Ben Vargas said, if a building has three or more units in it, then you can't rent it without you also being on the premises. This essentially outlaws all short-term rentals (or Airbnbs) in New York City. Now, are thousands still doing it? They sure are.
But the risk -- even if not super big -- is there. Violation fines start at $1,000 simply for advertising a listing (not even for renting it). The fines go to $5,000 and then $7,500 after that. And I thought the Airbnb laws in Denver were tough.
@James Carlson, wow that'll be costly indeed. I plan to be living in one of the units as well because financing will be through a VA loan. These types of loans require you to live in one of your units as a primary residence. Under this stipulation I may allowed to operate Airbnb.
Not sure if BP allows for links sorry if can't... But bushwick owner was fined $11,000 for airbnb the whole house with 34 people staying there...Like someone else said people are still doing it....I seen a 8 unit building in Spanish Harlem on e.116st being rented out as airbnb..
Hi Brandon, NYC Is tough on those BnB rentals, but people are still doing it, just open the site and see for yourself.
You will have to be careful though, with the owner living in the unit rule. You mention you are looking to buy 4 unit property. Technically those would be 4 separate units. I am not an attorney, so please get a professional advise on this, but the way I see it, each of those units is a separate apartment (if this is a 4 fam. house). So you would have to live in each of them at the time they are rented for less than 30 days. Maybe I am wrong. If you live in one unit, you can rent the rooms in that unit on a short term basis. The other 3 units would be considered entire apartment.
Also, depending on which part of BK you are in, the demand may be different that the most "trendy" areas, and that will affect your income. I would say don't dwell on it too much though. Try it out and see how it goes.
Hi Brandon, unfortunately in NYC you can only rent out rooms in the apartment that is your primary residence (and there is a a condition that you should be actually residing in this apartment. I am in a similar situation - was very much looking forward to rent my spare apartment in a 2-fam through AirBnB, but (even though hard to believe and does not make much sense) it is illegal in NYC. I ma considering eventually turning my house into a "hotel", but have not done so yet.
If it is a 2 family you can do airbnb in NYC. More than that is an issue.
The MDL does not prohibit:
- hosted short-term rentals—rentals where the human host is present in the unit—provided that the guest has access to all parts of the apartment or other dwelling unit
- short-term rentals, whether hosted or not, in “private dwellings”—one-and two-family homes, or
- rentals of longer than 30 days.
- However, all such rentals could violate various other laws.