Airbnb Rental Arbitrage in Waco | What You Should Know!

What is Airbnb Rental Arbitrage?

Airbnb rental arbitrage is a unique strategy that allows hosts to list and earn on the platform legally without directly owning property. The increasingly popular strategy is a type of subletting for Airbnb where you lease a property for the long term and list it on Airbnb, which is for the short term. You use the income from your Airbnb business to pay your rent; the rest is your profit.

Waco as a Tourist Destination

The heart of Texas and the county seat of McLennan County, Waco is also the birthplace of Dr. Pepper, the Texas Ranger Hall of Fame and Museum, and the Texas Sports Hall of Fame. Waco has been a top tourist destination, averaging over two million visitors a year since 2016. In June 2021, Waco saw more than 203,000 visitors.

A major seat of higher learning, it is home to three major colleges – Baylor University, Texas State Technical College, and McLennan Community College – making it also a great location to attract college student rentals.

Waco is a great destination that offers multiple attractions. Visitors can surf waves comparable to Oahu’s North Shore and float down the world’s longest lazy river at BSR Cable Park & Surf Resort or enjoy a scenic walk along the banks of the Brazos River. They can hike the peaceful trails at Lake Waco Wetlands or go swimming or boating at any of the 5 parks on Lake Waco’s shoreline. There’s also kayaking, paddleboarding or fishing down the Bosque or Brazos rivers, whilst enjoying stunning visages and an abundance of catfish, largemouth, whitebass, and crappie. The rivers are host to numerous races that attract sports tourists throughout the year.

Cameron Park is an enormous urban park brimming with activities for families, from playgrounds, picnic areas, a cross-country running track, a disc golf course and is home to Cameron Park Zoo where visitors can get an up close look at hundreds of animals from around the world. Animal lovers can also visit with Judge Joy Reynolds and Judge Sue Sloan, two North American black bears in the Bear Habitat of Baylor campus and learn about historical animals at the Waco Mammoth National Monument which includes a dig site containing the remains of 6 Columbian mammoths.

For the more shopping inclined traveler, there is the wonderland of home décor Magnolia Market and the Waco Downtown Farmers Market offering an enticing selection of locally grown produce and art. For connoisseurs of spirits a tour of Balcones Distilling which makes award winning bourbons, rums, and whiskeys or stop by at the taproom of Bare Arms Brewing or Waco Ale Company for craft beers or the tasting room at Valley Mills Vineyards for wine.

Browse art galleries, admire vibrant murals, shop at boutique clothing and home furnishing stores, and savor locally sourced cuisine amongst restored 19th century architecture at Waco Downtown Cultural District. For unique accessories, luxuries, and antiques try The Findery, Spice Village, LaSalle Shoppes, or Homestead Craft Village. Wind down your day with a juicy steak, savory brisket or grass fed burger along with divine cupcakes that Waco is known for. Top it off by catching a late show at Waco Hippodrome Theatre or live music and pool at Backyard Waco.

Airbnb Rental Arbitrage Opportunity in Waco

According to AirDNA, the leading provider of data and analytics for the short term rental industry, Waco is one of the top medium sized US markets to invest in, with a Investability score of 100 and an AirDNA score of 88. AirDNA also calculates a revenue potential of $34, 710 for the city.

Furthermore, in 2021, Waco garnered:

• An average daily rate of $205 (October 2021)

• An average occupancy rate of 82% (June 2021)

• An average monthly revenue of $3,886 (October 2021)

According to AirDNA data, 94% of active short term rentals in Waco are entire homes and the majority of vacation rentals being 1 to 3 bedroomed houses.

Airbnb Rules in Waco

The city of Waco defines short term rentals including Airbnbs as a vacation rental that is rented out of a furnished home, apartment, or condominium for a stay of less than 30 consecutive days. A short term rental can consist of one or more dwelling units.

Waco recognizes five different short term rental categories:

• Bed and Breakfast Homestay (BBHE)

The owner stays on the property while renting it out. A BBHE is permitted up to 5 guest rooms and can be rented out to multiple groups simultaneously.

• Bed and Breakfast Inn (B&B Inn)

The resident manager stays on the property while operating the inn. A B&B Inn can have up to 15 gust rooms and rent out to multiple guests at the same time.

• Short Term Rental Type I

The owner remains on the property while operating the short term rental and can only be rented out to a single group of guests at a time.

• Short Term Rental Type II

This is a singe family or duplex property which can only be rented to one group at a time. The owner does not stay on the property while the short term rental is operational.

• Short Term Rental Type III

This is part of any multi-family residential property such as a townhouse, condo, apartment, or loft with at least 3 units. The owner does not stay on the property while the short term rental is being operated. It can only be rented out to one group at a time.

What are the Steps to Operating an Airbnb in the City of Waco?

1. Obtain a city of Waco Short Term Rental License

2. Get set up online to pay city of Waco (7%) and McLennan County (2%) Hotel Occupancy Taxes

3. Get set up online to pay State of Texas Hotel Occupancy Tax (6%)

4. Get listed on the Waco visitor website and visitor app (optional)

City of Waco Short Term Rental Licensing

All Airbnbs must obtain a short term rental license prior to beginning to rent. The short term rental license application process is managed by the City of Waco Planning Department. The application requires:

• Site plan showing the property and required parking showing the dimensions of the parking space as well as how parking is accessed

• Proof of compliance with Section 13-470 through 13-471 of the license ordinance

• A special permit, if required

• A life safety inspection

In case of a permit renewal, the short term rental license application will also require:

• Record of city of Waco and McLennan county hotel occupancy tax payments

• A copy of the certificate of occupancy issued in the last 12 months, if applicable

The license application can be completed online via Citizen Self Service.

Once the application is approved, a license fee of $150 or $50 for renewal must be paid. The license is valid for two years from the date of issuance and must be renewed.

When is a Special Permit Required?

A special permit is required if your short term rental category is located in certain zoning districts. For example, the Waco City Council amended the city’s short term rental ordinance in May 2021 to prevent short term rentals without owners in residence out of residentially zoned neighborhoods. You can check the zoning category of your property on the City of Waco interactive zoning map.

A special permit must be approved by both the Plan Commission and Waco City Council and must include providing notice to all property owners within 200ft of the proposed short term rental property. The special permit process takes approximately 60-90 days.

Life Safety Inspection

All short term rentals must pass a life safety inspection to obtain a short term rental license.

If the property is of recent construction, a certificate of occupancy issued less than 12 months prior can be submitted instead. It will however require the addition of an evacuation plan in each sleeping area and evidence that the requirement has been met.

Once the application is submitted you will be notified when to schedule a life safety inspection. Call 254 750 5612 to do so.

Zoning Rules

A BBHE or STR Type II cannot be located within 500ft of another in R_E, R-1A, R-1B, R-1C, and R-2 zoning districts.

Short term rental guests are not allowed to park on the street. Each rented room requires at least one off-street parking space. BBHE, B&B Inn, and STR Type I properties require a minimum of two parking spaces plus one parking space per rented room. Parking must meet the standards of the City of Waco Parking and Access Design Standards for Site Development (pg 18-23) and Article VII of Chapter 28 of the code of ordinances. Short term rentals in the C-4 zone are exempt from the parking requirement.

Occupancy Limits

The maximum occupancy for all types of short term rental categories is 2 adults per bedroom plus an additional 2 adults per rental unit. However BBHE, STR Type I, and STR Type II in R-E, R-1A, R-1B, and R-1C zoning districts cannot be occupied by more than 4 individuals unrelated by blood, marriage, or adoption at any given time.

Other Laws and Regulations

• If the license holder does not reside in McLennan County, a designated operator who resides in the county and is present and available when the short term rental is being used must be assigned.

• All short term rentals must abide by the city’s noise requirements.

• Each short term rental unit must conspicuously display a sign provided by the Development Services Department in the common area.

• All online and traditional marketing materials must prominently display the assigned license number and occupancy limit.

Taxes

Short term rentals in the city of Waco are subject to city, county, and state hotel occupancy taxes.

• The city of Waco imposes a hotel occupancy tax of 7%.

• The McLennan County imposes a hotel occupancy tax of 2%.

Both the city and county have contracted with Avenu to help short term rental operators set up their account and pay taxes for free.

The State of Texas imposes an occupancy tax of 6%. This is administered by the Texas Comptroller of Public Accounts. Airbnb however collects and remits occupancy tax on behalf of the state.

List on Waco Convention & Visitors Bureau

If you want, you can list your Airbnb with the Waco Convention & Visitors Bureau to obtain their assistance in marketing your property. Short term rentals are listed in the lodging section of the Bureau’s visitor website which gets an enormous amount of traffic.

Listings will also be viewable on the Waco Visitor app and visitor kiosks located at the Waco Convention Center, Waco Tourist Information Center, and Waco Regional Airport. They could also be added to printed materials such as visitor maps and visitor guides when appropriate.