Short-Term Rentals in Austin | Potential for Arbitrage

Are you ready to explore short-term rentals in Austin, Texas?

In this article, we'll provide you with all the essential information about short-term rentals for hosts aspiring to start a short-term rental in the heart of Texas. This information will assist you in navigating the short-term rental market and embracing Austin's distinctive hospitality atmosphere.

The information below covers a lot, from managing data for short-term rentals to understanding and adhering to local regulations. Let's take a tour of Austin, the live music capital, where short-term rentals meet the charm of Austin!

What is Rental Arbitrage?

Rental arbitrage is like renting a property within a property.

Here's how it works:

First, you lease a property for an extended period, usually a year. Next, you list that property on vacation rental websites like Airbnb, VRBO and Expedia. You then re-rent it out on a short-term basis to travelers capitalizing on the booming short-term rental market.

Unlike traditional real estate investment, rental arbitrage doesn't require buying a home. There are no down payments, closing costs, or hefty mortgage loans. Cash for furniture and supplies is all you need.

In a nutshell, it's turning a long-term lease into short-term gains without the typical financial hurdles of property ownership.

Get To Know Austin

Austin, Texas, is known for its vibrant cultural scene with live music, iconic venues, picturesque parks and water activities. The city is also a gastronomic hub with food trucks, barbecue joints and innovative eateries. Its museums and landmarks reflect the city's rich history, offering a glimpse into its past. Austin's allure lies in its combination of creativity, nature and cultural vibrancy, making it an attractive destination for visitors.

It’s no wonder it is now a hotbed for the short-term rental market.

Austin Real Estate News

Austin's real estate scene is undergoing some changes. According to a new housing market predictions rank Austin high even after a slight cool-off from being the hottest market in 2021. Experts suggest that the overall housing inventory in the Austin metro area has increased by 8.3%, reflecting dynamic market challenges. However, the housing market is slowing down and there are forecasts that home prices might continue to drop in 2024 due to waning demand.

It's a dynamic landscape and potential buyers might find interesting opportunities in the coming years.

Austin Short-Term Rental Market Overview

AirDNA's statistics on Austin’s short-term rental market:

• Annual revenue 15.3K
• Occupancy rate 32%
• Average daily rate $183.6
• RevPAR $ 92.7

Regulatory Framework of Austin Short-Term Rentals

Obtaining a permit to operate a short-term rental is almost impossible if it is not your primary residence in Austin.

If you want to succeed or keep your investment property legal you must understand short-term rental (STR) rules and regulations.

Important Update on Short-Term Rentals in Austin

About the August 2023 ruling impacting Austin's Short-Term Rental Program.

The court ruled that Type 2 licenses must be available in the same parts of the city where Type 1 licenses are available. Austin Division STRs must continue to be licensed, but Type 2 licenses must be made available in the same parts. Individuals who owned their property prior to the 2016 ordinance approval are eligible for a Type 2 license. The city stopped issuing new Type 2 licenses in residential neighborhoods in 2016. The online application is currently being updated to accept Type 2 license applications.

Types of Short-Term Rentals Applicable in Austin

Owners of Short-Term Rentals (STRs) are required by the City of Austin to obtain an operating license and renew annually.

Below are the classifications used by the City of Austin

Type 1 - owner-occupied (single-family, multifamily or duplex)

Are owner-occupied or associated with an owner-occupied principal residence

Include the rental of an entire dwelling unit

OR

If only part of the unit, including at a minimum a sleeping room (with a shared full bathroom), is limited to a single party of individuals and the owner is generally present during the rental

Type 1 Application Form

Rule:

Owners must provide documentation that the property is owner-occupied or is associated with an owner-occupied principal residential unit.

Ownership information on your application must match the deed as recorded with the Travis County Clerk's office or Williamson County Clerk's office.

Type 2 - not owner-occupied (single-family or duplex)

Are not owner-occupied or associated with an owner-occupied principal residence

Are single-family or duplex properties

Include rental of an entire dwelling unit

Type 2 Application Form Residential Type 2 Application Form Commercial

Note:

Commercial licenses are only allowed in the following commercial zoning districts:

• Central Business District (CBD)
• Downtown Mixed Use (DMU)
• Planned Unit Development (PUD)
• General-Retail - Mixed Use (GR-MU)
• Commercial Services - Mixed Use (CS-MU)
• Commercial Services - Vertical Mixed Use (CS-V)
• General Retail - Vertical Mixed Use (GR-V)
• Annual Renewal Required

Rule:

Ownership information on your application must match the deed as recorded with the Travis County Clerk's office or Williamson County Clerk's office.

Type 3 - not owner-occupied - (multi-family)

Are either owner-occupied or not owner-occupied

Are part of a multi-family use (apartments, condos, etc.) property

Include the rental of anentire dwelling unit

Rule:

Owners must provide documentation of the total number of buildings on the property and the number of units per building. Owners must comply with applicable geographic caps.

Ownership information on your application must match the deed as recorded with the Travis County Clerk's office or Williamson County Clerk's office.

Rental Arbitrage Regulations in Austin

Let's have a look at how you can legally make your home a short-term rental.

Licensing

Owners of Short-Term Rentals) are required to obtain an operating license annually (Ordinance No. 20160223-A.l). This law applies to all properties (including rooms and guest houses) rented for less than 30 consecutive days.

Documentation requirement for license

• Find the STR license application for your type.
• Apply online for a STR operating license.
• Pay a total fee of $863.80 (non-refundable) (includes $817.00 application fee, $45.00 notification fee, and $1.80 DSD technology fee) in cash, cheque or money order
• Proof of property insurance
• Proof of payment of City of Austin hotel occupancy taxes (IF you have been using your property as a short-term rental then proof of hotel occupancy taxes is required)
• Copy of canceled cheque, AND
• Copy of the most recent quarter tax report submitted to the city controller’s office, OR
• If you have not had any renters in this quarter, a copy of the zero report filed
• Obtain a Certificate of Occupancy
• Driver’s license

Note :

All 3rd party agents must have notarized authorization from owners allowing them to manage property.

Annual Renewal is a Must

Ensure that your license is renewed annually. Property owners are required to drop off the following documents at the Austin Code Department every year.

• $490.00 (non-refundable) Fee

• Credit card, cash, check or money order payable to the City of Austin. The application fee is non-refundable.

• Proof of current property insurance

• Declarations, information or summary pages from your policy

• Proof of payment of City of Austin Hotel Occupancy Taxes. Copy of canceled cheque used to pay Hotel occupancy tax Fees, AND copy of the most recent quarter tax report submitted to the City Controller’s Office, OR

• If you have not had any renters in this quarter, a copy of the zero report filed

• The license must be renewed before it expires. If the owner and/or street address of the STR have changed, you MUST submit a new application with signatures from all owners and the owner’s agent, if applicable. If other application information has changed, the information must be sent in a letter signed by the owner, without having to submit a new application.

Tax on Short-Term Rentals in Austin

Taxes

The City of Austin's hotel occupancy tax rate is 11 percent, comprising a 9 percent occupancy tax and an additional 2 percent venue project tax. Texas law requires that each bill or other receipt for a hotel charge subject to the tax imposed for a venue project contain a statement in a conspicuous location stating:

"The City of Austin requires that an additional tax of two percent (2%) be imposed on each hotel charge to finance a venue project."

Side Note :

To pay the HOT, you will first need to contact the Comptroller’s Office to register and obtain a taxpayer ID number.

Requirements for tax reporting

The City of Austin Controller's Office must receive a report of Hotel Occupancy Tax from each person obligated to collect the tax. This report must detail the consideration paid for each room occupancy during the previous quarter, the amount of permanent (30-day) and other exemptions granted, and the amount of tax collected on those occupancies. It needs to be accompanied by a payment in the amount of the tax collected.

Each quarterly reporting period (quarter ending March 31 due April 30, quarter ending June 30 due July 31, quarter ending Sept. 30 due Oct. 31, and quarter ending Dec. 31 due Jan. 31) has a deadline for reports and payments on the last day of the month that follows.

Navigating Austin's Short-Term Rental Scene

Austin's short-term rental market is shaped by strict regulations and a focus on balancing the needs of both residents and visitors. To ensure compliance, property owners and hosts must navigate the licensing process, adhere to city classifications, and stay updated on legal developments.

For the latest information on short-term rental regulations, it's essential to consult the city's official resources, ensuring a lawful and hassle-free operation in Austin's dynamic market.