If you’re in the apartment industry, you’re undoubtedly well aware of the fact that, for the most part, owners and operators have been quite skittish about embracing short-term rentals.

The reasons are several. To start with, residents have long been leery of them. Also, short-term rentals can create numerous tax and logistical issues. 

However, bold, forward-thinking operators have looked at the popularity of sites like Airbnb and VRBO and have seen a significant business opportunity. The revenue potential and operational challenges presented by short-term rentals will be examined in a session at the upcoming MICA 2020 conference in Atlanta.

If you’re contemplating incorporating short-term rentals into your multifamily portfolio, make sure you consider the following three potential challenges and plan ahead for them:

• Taxes. There’s no way around it: taxes can get really complicated when it comes to short-term rentals. Depending on the jurisdiction in which your community is located, putting apartment homes up for short-term rentals could have some unexpected tax consequences. Some local jurisdictions even require you to get a lodging license and subject you to expensive hospitality taxes.
  
  Offering short-term rentals can be a great way to enhance a community’s revenue stream, but you have to make sure you understand the tax implications in the jurisdictions you’d like to operate and plan accordingly.

• The organization and configuration of short-term rentals. Are you going to cordon off one floor of your community for short-term rental units and manage the units yourself? Are you going to dedicate a whole building to them? Or are you going to let residents rent out their homes when they want to and share the revenue with them? If your residents are free to lease their units when they want to, will you ask them to get the lodging license and pay any hospitality taxes? As you can see, there are a lot of strategic and tactical considerations to explore before moving forward.

• Resident concerns. Renters traditionally have been squeamish about the idea of random people who don’t live there visiting the property for short stays. However, evidence is emerging that apartment residents' hostility to short-term rentals is beginning to soften at least somewhat.

According to J Turner Research's 2019 "Short-Term Rentals: Deal or No Deal?" report, 19 percent of apartment residents would "definitely not" live in a community that allowed short-term rentals. That's a six-percentage-point reduction from the 2016 report.

Still, before implementing a short-term-rental operation, apartment managers need to proactively address residents’ concerns. Send them emails explaining the decision and explain why they don’t need to worry. Detail whatever safeguards and screening procedures may be in place. Consider holding a town-hall-style event at which you will answer their questions and allay their concerns.

Moving forward, short-term rentals are bound to become more common at apartment communities. The potential revenue and NOI benefits are just too strong to ignore. 

But the successful implementation of them certainly will require careful planning. By making sure they’ve addressed the three challenges outlined above, apartment operators will be well on their way to making short-term rentals a viable long-term play.