How to Navigate STR License and Regulations for Rental Properties

The short-term rental game can be a very rewarding undertaking and there are plenty of opportunities out there for budding investors. From beachfront properties in some of the most popular tourist resorts to smart apartments for city lovers – the choice is yours.

But, if you’re wondering about what kind of paperwork you’ll need to do, don’t worry. This article is here to guide you through the process of short-term rental STR licensing. There are a number of things you need to be aware of when applying for an STR license – so let’s dive into a few details.

Importance of understanding short-term rental (STR) licensing

Before we get started, it’s important to state that while you can use this article as a basic overview, you shouldn’t take it as legal advice. Owning a vacation rental involves meeting the requirements of a complex patchwork of rules and regulations. Here’s why securing advice from a legal professional is crucial.

Compliance prevents risks of legal issues and fines

Some counties and municipalities are much stricter than others when it comes to short-term rentals. For instance, New York City has a whole suite of rules covered by the NYS Multiple Dwelling Law, the NYC Administrative Code, and the New York City Zoning Resolution.

These ban the short-term rental of entire apartments or buildings for periods of less than 30 days. If you live in the property as your primary residence, you can rent out part of it for a period ranging under 30 days, but even so, you can host no more than two paying guests at once.

You don’t want to get into a sticky situation where you’ve gone against the regulations and find yourself facing huge fines and other legal issues.

Fosters community ties and avoids potential conflicts

The STR property owner will have to consider the local area when thinking about purchasing real estate for short-term rental. If you’re hoping to rent out a vacation house to college students, you have to be ready for the fact they might not respect a ‘no party’ rule.

In other words, you can’t simply assume all your guests will abide by the house rules you give them. But if they don’t, it’ll be you who suffers the blowback in terms of irritated neighbors and potential trouble with the city council. If that happens, you’ll need community support you can depend on and an excellent track record to stand you in good stead.

Aids in smooth licensing applications and budgeting

Making sure you meet all the regulatory requirements will help your license applications go more smoothly. As long as you’ve done your homework, you’ll find the license application process is fairly straightforward in most jurisdictions.

There’s also the question of applying for funding from a lender to buy the property you want. Getting all your ducks in a row in terms of regulatory approval will make it much easier to secure short-term rental financing on favorable terms.

Prevent operational disruptions and guest conflicts

When making an investment in short-term rental properties, it can be tempting to try to increase your returns by going over the maximum permitted capacity limit for individual dwelling units. This, though, is a big mistake.

It’s crucial to be rigorous about meeting the conditions of your STR license, whether you’re planning to rent out luxury villas or basic short-stay apartments. Otherwise, you could be in for a world of trouble if conflict between guests arises because of cramped conditions. If local rules state a maximum number of guests per dwelling unit, it’s vital to respect them.

Factors affecting STR licenses and regulations

Researching the factors that apply to securing STR licenses in your local area should be the first item on your to-do list. Not everything listed here will necessarily be relevant to your circumstances, but plenty will be, and it’s important to nail down the essentials in advance.

Local zoning and municipal ordinances

Zoning ordinances define specific geographic areas as being for commercial or residential use. This can be a problem if you find your dream property but you can’t get an STR license for it because renting out short-term rental units counts as a business.

So, tread carefully. The appropriate zoning restrictions are something you should check out before you make an offer on a specific piece of real estate. You have to know for certain that it’s suitable for short-term vacation rentals before you make an application for a new license.

Business permit requirements and tax obligations

Be sure to establish all the local permit requirements and which taxes you’ll need to pay. In many cases, you’ll need some kind of general business license in addition to your STR license.

Those of you who might be considering investing abroad will need to be even more wary about this aspect of the process. Let’s say your dream is to own a vacation rental in Thailand, for example. This has become more plausible lately thanks to a relaxation in Thai law that has increased the maximum permitted capacity for STRs from 20 guests and four rooms to no more than 30 guests and eight rooms.

This is doable, but bear in mind it’s not always possible for people resident abroad to purchase property in every country. In Thailand, foreigners can’t get a permit to own land directly, for one thing, so you’d need to go through one of the well-established workarounds such as buying a condo or leasehold.

Some countries, on the other hand, are much more relaxed about the rules surrounding foreign ownership. If you have deep pockets, you might do well to look at London or another major UK city. If you choose this option, you should be careful to use country-appropriate expense management software that’s specifically designed for the local market. That way, the needed admin is built into the system, and you don’t have to worry about missing anything.

Community and homeowner’s association rules

If you purchase a property that’s part of a homeowner’s association (HOA), you’ll automatically become a member of the HOA when the sale closes. That means you’ll then be responsible for following all the rules and regulations the HOA imposes on its members.

These rules encourage property owners in residential neighborhoods to look after their properties to an agreed-upon community standard. They apply equally to those having their permanent residence there and landlords offering short-term and vacation rentals. The rules will typically include a mixture of:

• Home maintenance standards
• Noise complaint policies
• Occupancy limits
• Regulations governing street parking spaces
• Pet size and/or quantity restrictions
• Trash and recycling protocols
• Architectural controls
• Lawn decoration restrictions.

One thing to beware of is that some HOAs explicitly prohibit short-term rentals. That means you need to check the governing documents of the relevant HOA before you buy real estate within its purview.

Safety and building code standards

The building code most commonly used in the US is the International Building Code. It has been adopted by all 50 states, the District of Columbia, Guam, the Northern Marianas Islands, New York City, the US Virgin Islands, and Puerto Rico. So it’s worthwhile becoming at least slightly familiar with it, even if you don’t need to master the details the way an architect does.

Building code compliance is essential if you hope to operate short-term rentals effectively. And in some regions, special rules apply. For instance, the California Building Code is pretty strict because the San Andreas Fault runs through the state. That means buildings there have to be constructed and managed with a view to withstanding a major earthquake.

As always, check which codes apply in the area where you’re purchasing your short-term rental unit so that you’re well prepared.

Online platform requirements

Should you go with AirBnB or Vrbo? Or maybe booking.com is more your style? Selecting the right online portal can be a challenge. That said, it’s definitely a good idea to consider these platforms, as they’re a great way of bringing owners together with suitable renters.

Before creating an online listing, make sure you fully understand the requirements of each platform. One of AirBnB’s USPs, for example, is that it allows you to list shared spaces, such as a single room in a shared property.

On the other hand, Vrbo and booking.com are aimed more at short-term rentals of entire apartments or houses. Booking.com also acts as an agent for large commercial enterprises such as hotels. Make sure you have a good grasp of the rules of each platform before embarking on your final decision-making process.

Renewal procedures and policy updates 

Even once you’ve secured your first Short Term Rental license, that’s not the end of the story. You’ll generally need to renew your license, most every calendar year and commonly on a twelve-month schedule. Be alert for updates to the rules and regulations around licensing to make sure you continue to meet all the most up-to-date policy requirements.

Common licenses required for operating short-term rentals

At this point, it would probably be useful to draw together everything discussed so far and provide a list of the most common licenses you’re likely to need in the short-term rental business.

Business licenses

First, you’re running a business, so you might need to obtain a general business license. Most states don’t require it, but plenty of counties and cities do.

A valid general business license – also known as a business operating license – entitles you to do business in your locality. If you’re a resident in one state but renting out property in another, it’s best to consult with an expert in business law to make sure you stay compliant.

Occupancy tax licenses

You may also need a license to collect occupancy tax. You’ll use this license number to report the Transient Occupancy Tax (TOT) you collect from your renters (see below).

Short-term rental permits

Most short-term rental operators in the US will need an STR permit. This serves as a guarantee that your STR property meets all the county and requisite building codes, safety requirements, and zoning restrictions.

Health and safety inspection certificates

Before you put your property on the rental market, it will need to be certified for health and safety. Again, the precise rules vary between jurisdictions, so make sure to double-check that your property is fully compliant with all necessary regulations in your area before you go any further.

Zoning permits

If you’ve followed our advice about buying with one eye on zoning laws, you shouldn’t have any problems here. But if you want to apply for a change of use for the land you’ve bought, you’ll need to seek a zoning permit.

Generally speaking, this isn’t really worth doing for short term rental applicants unless you’re planning a large redevelopment project. Most short-term rental owners will find the cost of applying for a zoning permit in terms of time and money prohibitive.

That said, if this is a route you want to go down, bear in mind it’s a multi-stage process that involves getting the approval of a number of different bodies:

• City staff
• Planning commission
• Board of Zoning Adjustment
• Local government.

You should never buy land on the assumption that you’ll be able to get a zoning permit afterward.

Transient occupancy tax (TOT) Registration

Check whether you need a license to collect TOT. If you do, make sure to contact them to establish whether registration is part of that process or whether you need to complete it separately.

The rate payable (also known as the lodging tax rate) varies widely from state to state, from as low as 0% in Alaska and California to as high as 15% in Connecticut.

Homeowner’s association (HOA) Approval 

As previously mentioned, you need to make sure you follow all the relevant regulations if you buy a property that’s subject to HOA rules. All HOAs have a set of governing documents that you should study before committing to a purchase.

Realtor and property manager compliance

Whether you’re thinking of using property management companies or online hosting platforms, you need to make sure that everyone involved in the process of letting your short-term rental property is fully compliant with all the necessary regulations.

And if you’re managing a portfolio of several properties, it can be a good plan to set up your own management company as a hub, so you have full control of operations and can prioritize compliance.

If this is an option that appeals to you, do it correctly from the beginning. When you take on management staff both in the US and overseas, use only the best employee onboarding software to help you streamline workflows and automate progress reports. Doing this also simplifies the challenge of making sure everyone involved remains compliant, regardless of where they’re from. 

In addition, you might find it useful to use a collaboration platform to keep track of individual tasks, particularly as your portfolio grows. If you’re looking to expand, a collaboration platform will also help you in the long run as you deal with things such as tax returns and new or license fees and applications.

Key takeaways

Securing an STR license can seem like a daunting challenge, but it doesn’t have to be. The most important point is that you should approach it as a commercial business project – because that’s what it is. Even if you’re just thinking of renting out a spare vacation property you already own, it’s crucial to come at it with your business hat on.

If you take note of the guidelines set out in this article, you’ll have every chance of success. We wish you the best of luck!