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VOL. 39 | NO. 1 | Friday, January 2, 2015

Airbnb, other rental services take flight as tax collections, codes, zoning issues lag

By Hollie Deese

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Tiffany H., 43, has found the perfect way to make money. It’s close to home, easy-to-manage and gives her the flexibility she needs as a busy mom shuttling two children back and forth to two different schools each day.

She is part of a rapidly growing group of local homeowners making extra money by renting out their property – either the whole house or an individual room – through short-term rental sites like HomeAway, VRBO and, perhaps the most popular, Airbnb.

But, while Tiffany – who asked that her last name not be used – and many others like her have jumped on the short-term rental bandwagon in Music City, Metro government is scrambling not only to understand how it works, but how to regulate and tax it.

There are plenty of other concerns for neighborhood associations, homeowners, hosts and the city, including zoning, proof of insurance, permits, parking and many more unsettled issues that have Airbnb hosts concerned about the future of their at-home, do-it-yourself hotel business.

Some homeowner associations aren’t even sure they want short-term rentals in the neighborhood and are taken aback to discover Airbnb and others are already there.

A showdown appears to be in the offing, even as Nashville’s growing tourist industry boosts the popularity of short-term rentals.

Tiffany’s story

“We live in Inglewood and have a converted garage behind our house, in our backyard, so it is completely private, but still about 15 feet from our house,” she says.

Her mom and dad renovated the property to stay in when they are in town visiting from Kansas City. When they are not in Nashville, Tiffany lists the property on Airbnb.

“I can block off the days when my family is coming, but otherwise I try to rent it as much as I can,” she says.

“I had been thinking about renting our place, but just didn’t feel like VBRO was the right avenue,” she explains. “My mom and best friend told me about this, and I thought it was just edgy enough that it might be perfect for me and my place.”

And she has seen the number of fellow hosts – Airbnb’s term for the property owners – expand rapidly since she first began offering her property.

“There is a lot more competition now, so I am not sure how this winter will be, but compared to last year, Nashville is Airbnb’s most rapidly growing city,” she says. “I think there are over 600 listings that are entire places like mine is, as opposed to a shared room.”

This summer Airbnb released the 10 cities with the highest percentage increase in summer bookings over the previous year, and Nashville easily topped the list with a 365 percent increase in 2014 compared to 2013.

Airbnb calls itself a community-driven hospitality company, and has 120,000 listings in the United States. It’s hard to track exact numbers for Nashville, but a recent search on Airbnb alone pulled up nearly 900 listings for a weekend in January.

A letter from the taxman

In November, Metro Treasurer Tom Eddlemon sent out 430 notices to Davidson County homeowners who are leasing their homes short-term, but were not currently paying a hotel occupancy tax.

The letter gave the property owners 30 days to pay the same 6 percent tax on nightly revenues, plus an additional $2.50/night fee. They are to pay taxes from the first day they have rented.

As of Christmas week, Eddlemon says in an email that more than 125 of those people have already remitted tax payments totaling $51,000. No additional letters have been sent.

But since no Metro legislation has been passed to regulate Airbnb users as of yet, some were surprised by the letter – if they got one at all.

Tiffany didn’t get one, and she is nervous about what to expect since the she understands the Metro Office of the Treasurer does not typically set up payment plans for back taxes because penalty and interest will still accrue.

Tiffany H. rents her detached Inglewood garage, which her father helped her transform, through Airbnb, making $2,000 to $3,000 per month. She says she has not yet received a tax bill from Metro, as many other short-term renters have. The rental unit has its own bath, kitchen, entrance and parking.

-- Lyle Graves | The Ledger

She wants to pay, and already gets a 1099 and pays on her personal [Federal] taxes, in addition to the 3 percent service fee she pays to Airbnb each time she books her room.

“The legislation hasn’t been passed yet, but I hope it will because I will gladly pay the sales tax or whatever they end up with,” Tiffany states. “But they are also having opposition from people who are against the whole thing. They don’t want this in our backyard, but if Nashville wants to be a progressive city, this is part of it.”

Allen has a game plan

Airbnb has been around since 2008, and since then the rent-by-owner site has been an easy platform for connecting hosts with guests, despite, in many cases, bypassing local short-term lodging ordinances and zoning laws. Not too hard to do when you are dealing with countless different zoning laws for short-term renters across the country.

Metro Council member Burkley Allen represents parts of the West End-Hillsboro area and has spent the past few months speaking around town at various neighborhood organizations about pending Metro legislation she is sponsoring.

That legislation more clearly addresses the tax issue and also would require:

  • Proof of insurance
  • An annual permit through Metro Codes
  • Regulation of signage, noise, parking and food service
  • Limit guest stays to 30 days or less
  • Limit the number of guests to twice the number of sleeping rooms
  • Require that principal owners be at least 21 years old.

“Basically, I am just trying to put some arms around something that already exists and just kind of snuck up on us,” she explains. “In Metro there are at least 1,000 of them at this point, and our current codes are just not very specific.”

A second piece of legislation will be addressed again on January 6 that would create a new property use called “short-term rental properties,” which would be permitted in all residential zoning districts.

“The zoning administrator has not had much in the way of good law to look at,” Allen says. “The idea was to put an official definition in there that deals with what we are calling ‘short-term rental property.’”

In the legislation, the Metropolitan Code would be amended to define “short-term rental property” as a residential dwelling unit containing not more than four sleeping rooms that is used and/or advertised for rent for transient occupancy by guests.

Dwelling units rented to the same occupant for more than 30 continuous days, bed and breakfast establishments, boarding houses, hotels and motels would not be considered short-term rental property.

The amendment would enable short-term rentals in all zoning districts that allow residential use.

Wait a minute …

But James Kelley, president of the Richland-West End Neighborhood Association and partner at the law firm of Neal and Harwell, says all residents everyone should have a problem with what would essentially be a blanket rezoning of all residential districts with zero input from the homeowners.

“If you look at the definition of a boarding house, this sure sounds like a boarding house, which is prohibited,” he says.

The definition of a boarding house in Metro Zoning Code is a residential facility or a portion of a dwelling unit for the temporary accommodation of persons or families in a rooming unit, whether for compensation or not, who are in need of lodging, personal services, supervision or rehabilitative services.

The den area of Tiffany H.’s Inglewood rental. She says renters “bring so much money to local businesses, restaurants, and I think it is an absolute value to our city.”

-- Lyle Graves | The Ledger

“Do the majority of people in single-family districts want this change without any discussion, or do they want to have the opportunity to weigh in on it?” Kelley asks.

Kelley says he doesn’t object to regulation, just changing the zoning of every residential district. He suggests the city adopt this in any district that is multi-family because that zoning already permits it, and then allow single-family neighborhoods to opt in.

“If you live in a single-family neighborhood, until that neighborhood decides they want to be STRPs, you can’t do it, and that makes it a local decision,” he says.

“As I understand it, this is a very popular concept in East Nashville. Well, good. They can opt in.

“Having the opt-in process lets the parts of Nashville it fits participate and it also lets everybody weigh in as opposed to waking up one day and having one of those ‘Oh shit’ moments.

“And I think that is where we are heading with this.”

Allen says she has experienced varying opinions from neighborhood organizations about short-term rental properties.

She says she expected neighborhood organizations to look at it purely from the neighborhood perspective, but as often as not the questions have revolved around restrictions.

“Some are a little nervous about having this in our midst, and they don’t think we should let it in, and the answer to that is, it is already here and nobody has noticed,” Allen says.

“I am just trying to make sure it doesn’t grow so big that it does become a problem. I think it is important to provide some protections for the neighborhood.

“There is a limit on how many non-owner occupied of these there can be in a given area. And I think that is important. To have an entire area become totally transient would not be good,” Allen adds.

Cashing in on cache

Love it or hate it, East Nashville is about as hot as it gets right now, continuously racking up nods left and right in the local and national press about how great the restaurants are, how hip the shopping is – how just unbelievably cool it is.

And a quick glance on Airbnb shows a large chunk of the rent-by-owner spots in town are concentrated right there.

Tiffany has rented out her Inglewood space for the past two years, and says she is pretty much booked all of the time.

She charges $89 a night and makes anywhere from $2,000-$3,000 per month.

She doesn’t charge cleaning fees, which keeps her prices competitive.

She also sends out an email to her guests with recommendations for local restaurants.

“I really encourage people to stay in East Nashville and Inglewood, and they do,” she says. “They take my advice.

“I tell them about all the shops and have the East Nashville shopping map over here, and a bunch of menus. It brings money to the area.”

In fact, neighborhood immersion is one of the big draws for people to choose a rent-by-owner listing over a large hotel room.

People can have an authentic Nashville experience that goes beyond Broadway, and for people considering a move – from across the country or across town – it is a great way to get an idea of what it would be like to live in a specific area.

Tiffany confirms that many of her guests are interested in moving to East Nashville and want to get a hands-on feel of what the neighborhoods are really like.

“I have a lot of international guests, and to them the idea of this type of rental is not as foreign as it is to us here,” she explains. “They have been doing stuff like this in Europe forever.

“And knock on wood, I have never had a bad experience. Everyone is so nice, and take such good care of my place. Most people clean before they leave, and it has been a really positive, wonderful experience.”

Sumner County takes note

North of the city in Sumner County, short-term rentals are just not an issue yet, but could be soon considering all of the lakefront property perfect for families who want a bit of a retreat with their trip to Nashville.

VBRO and Airbnb each already tout a couple of lakeside retreats for rent in Sumner, and the number is sure to grow.

So county officials are taking a watch-and-wait approach when it comes to what Nashville is doing.

“We have not heard of any complaints by hotels from people saying they were going to cancel their hotel room because they ended up in an Airbnb location,” says Barry Young, executive director if the Sumner County CVB.

“And hotel tax hasn’t really hit here yet, but it is probably coming if the trend continues.

“As far as we are concerned here in Sumner County, our hotel occupancy is as high as it has ever been, and we have not heard of any impact that Airbnb has had on this county yet, even though we are aware of it,” he adds.

“We are hoping there is some sort of data that will come out that tells us what kind of impact it has on the county, but right now we don’t have any way to track it.”

Slips and falls: Insurance

Effective January 2015, Airbnb began offering Host Protection Insurance of up to $1 million per incident free to all Airbnb hosts in the United States, and their landlords, when applicable, if a guest is accidentally injured anywhere on the property during their stay.

The protection also covers hosts for certain third-party claims of property damage.

According to the Airbnb website, incidents that would be covered under the host protection insurance include guest slip and falls.

Not included would be property issues like mold or bed bugs. Plus, this insurance is subject to a $2 million cap per listing location.

However, this protection offered by Airbnb is only secondary to the homeowner’s primary insurance, if they have it.

Time will tell how this pans out though, since some people might have problems getting their regular homeowner’s or renter’s policy to pay out on a commercial business venture.

For Butch Spyridon, president and CEO of the Nashville Convention and Visitors Corp., public safety is the No. 1 need to be addressed when it comes to short-term rentals.

“As this has exploded, we really haven’t had that in the forethought,” Spyridon says.

“You could be renting a house from anybody and not knowing what you are getting into, or you could be renting your place to anybody.

“So having some sort of mindset around public safety, and that includes insurance. I don’t want to say screening, but to be mindful.”

Allen says the rental websites’ self-rating systems tends to take care of those issues. Homeowners rate their guests, guests rate the hosts and everyone seems to take the process very seriously.

Just ask any business who has gotten a few bad reviews on Yelp.

“The rating system keeps the properties looking good, and also keeps the tenants as the kind of people you are OK having in your neighborhood,” Allen adds.

“The self-rating system is an important piece of it. And often-times the short term rentals are kept up better than the long-term rentals.”

Tiffany uses Airbnb’s rating process to vet those she rents to, and has never had a problem.

“I have two little kids. I don’t want a big partier in my backyard, so I am very selective about who I rent it to, whether they are verified through Airbnb or through Facebook or other ways,” she says.

“I typically rent to people who have already been reviewed with good reviews, and certainly, my neighbors have been very supportive.”

Preserving Nashville’s reputation

Spyridon worries that it could only take one bad experience or two with a short-term rental property to put the reputation of the city on the line.

“It tarnishes the reputation of the city,” he says. “It would hurt Airbnb a little bit, but the city would take the black eye if that happens.”

He says he doesn’t want the city to grow just for the sake of getting bigger. He wants to see smart, strategic growth that falls in line with what makes Nashville great in the first place.

“We need to be mindful of the assets that have made us unique and protect them, too,” Spyridon says. “Studio A is a good example in terms of the symbolism of that.

“It is easy to let out-of-towners come in, let developers spend their money, but they don’t care about Nashville.

“So we have to be mindful. If you aren’t growing, you are probably dying. But you can also build your way into oblivion just like you can stagnate into oblivion.”

Allen says she loves using Airbnb when she travels to other cities and thinks visitors who come to Nashville and immerse themselves in the neighborhoods will go home with an even greater appreciation of all there is here.

“I have experienced it in other cities and it has made me enjoy those cities more,” she explains.

“And there is research that shows people tend to stay longer and spend more money when they do that.”

A study commissioned by the Short Term Rental Advocacy Center shows nine of 10 people believe short-term rentals bring meaningful tourism and tax dollars to local communities.

Also, about 59 percent of STR owners say they use income from renting their property short-term to make improvements and upgrades to their home.

For Tiffany, the money is used for something else.

“My son has dyslexia, and the money I get for this pays for his education, so it has been a really wonderful thing all around,” she says. “I would hate for it to get messed up.

“I just want to stress that this is so good for the community.” She adds. “It gives people who may not even come an opportunity to come.

“And it brings so much money to local businesses, restaurants, and I think it is an absolute value to our city.”

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