Rental Arbitrage in Austin | What You Should Know!

Rental arbitrage refers to renting a property long-term and re-renting it short-term on online vacation rental sites. Much like subletting, rental arbitrage is the act of renting out an already rented property.

In simple terms, you lease a long-term rental (usually for at least a year). Then, you list that property on vacation rental platforms such as Airbnb,VRBO,Expedia and re-rent it out on a short-term basis to travelers.

Taking advantage of the short-term rental trend for profit doesn't require purchasing a home. That's one of the major benefits of rental arbitrage. There are no down payments, no closing costs, and no expensive mortgage loans required. All You Need Is Cash for furniture and supplies.

Get to know Austin, Texas

Austin is the 11th largest city in the United States, with a population of over three million residents. According to Forbes, Austin was recently voted the No. 1 place to live in America based on affordability, job prospects and quality of life. It was also named the fastest growing large city in the U.S. It ranked No. 4 of the best large cities to start a business. It was chosen among the top 15 cities in the United States to visit.

It is no wonder it is now a hotbed for the real estate market. Over the past decade, real estate appreciation in the city has averaged 5.13%. Increasingly, companies and investors are buying up private spaces in Austin. This will drive the Austin housing market to grow even more in 2021 and 2022. It will result in an even more attractive investment proposition for Austin real estate investors.

Our objective is to illustrate how you can maximize this buzzing city's short-term rental potential by learning about the rental arbitrage process in Austin, Texas.

Regulatory Framework of Austin Short-Term Rentals

Austin has fairly strict regulations regarding short term rentals within its city limits. Short-term rentals are regulated by a comprehensive permitting process. As a matter of fact, in the City of Austin, it's almost impossible to obtain a permit to operate a short-term rental if it isn't your primary residence.

Understanding the rules and regulations of short-term rentals (STRs) is imperative. The rules in central Texas vary tremendously, and the success or legality of your investment property depends on understanding them.

Types of Short-Term Rentals Applicable in Austin, Texas

Below are the classifications used by the City of Austin to classify short-term rentals

Type 1 Owner-Occupied - (single-family, multifamily or duplex)

Are owner-occupied or associated with an owner-occupied principal residence.Includes the rental of an entire dwelling unit or If only part of the unit, includes at minimum a sleeping room (with shared full bathroom), is limited to a single party of individuals, and the owner is generally present during the rental.

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 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. The City ordinance places a cap on the number of STRs allowed to operate within each census tract of the city.

Rule:

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

Under the most recent ordinance, Type 2 short-term rentals will be eliminated in residential areas by 2022, though they could continue to be built in commercial areas.

Type 3 Not Owner-Occupied - (multifamily)

Are not owner-occupied. Are part of a multifamily use (apartments, condos, etc.) property. Include the rental of an entire dwelling unit Owners must provide documentation of the total number of buildings on the property and the number of units per building.

Rule:

Owners must comply with applicable geographic caps. Ownership information on your application must match the deed is recorded with the Travis County Clerk's office or Williamson County Clerk's office

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

Rental Arbitrage Regulations in Austin

Licensing

Owners of Short-Term Rentals (STRs) 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.

Follow the Four Document rule :

1. Complete the Short-term rental license application form ($567.00 (non-refundable) Total Fee (includes $50.00 Notification Fee)
2. Proof of property Insurance
3. Obtain a Certificate of Occupancy
4. Driver’s License
5. All 3rd Party Agents must have notarized authorization from Owners allowing them to manage property

Compliance

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

1. Payment Proof of Hotel Occupancy Taxes
2. Proof of Property Insurance
3. Renew your operating license payment of fees = $310.00 (Non refundable)

The license must be renewed before it expires.If the restrictions are violated, the property owners could face a fine of up to $2,000 and lose their operating license.

Taxes

1. Owners MUST charge guests a 9% Austin Hotel Occupancy Tax for each stay

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

2. Each quarter owners must remit taxes to Austin’s Office of Financial Services

3. Each quarter owners must send a Hotel Occupancy Tax Report to Austin’s Office of Financial Services

4. If you are listed with Airbnb, they collect and remit the 6% state of Texas Hotel Occupancy Taxes on behalf of owners. Owners using any other listing sites must collect and remit the tax themselves.

Market Overview

In the central zip codes of Austin, there are approximately 9,021 short-term rentals in operation.

• 6,996 units occupy a full home or unit
• 1,882 properties are open 300 or more days a year
• 1,553 properties Operate part-time

Performance Statistics

AirDNA's statistics on Austin, Texas, short-term rentals market

Median Monthly Revenue

$2,555 (nightly rate + cleaning fee) The revenue figure represents the median of the past 12 months without tax, service charges, or additional guest fees.

Occupancy Rate

67% - Median over a period of 12 months

Properties with no reservations are excluded in this figure.

Average Daily Rate

$199.00 - over the past 12 months

Average booked nightly rate + cleaning fee

Average Rental Size

2 Bedrooms

Average Length of reservation

3.3 Days

In Closing,

"Everything is bigger in Texas,” and so are the governing rules for short term rentals! Despite the threat of short-term rental properties being put on the chopping block in Austin, Texas, it would be prudent to proceed with caution. Check with your city's rental laws before renting out residences to vacationers. You need certain permits and need to provide proof of met-specifications. You also need to be aware of advertising the property online and what rules renters must abide by while in your space. In order to understand the arbitration rules in Austin, we hope that this information has been illuminating and insightful.

With the right protocols, you can be confident that you will be able to rent out your home worry-free and make a significant profit off of this market surge!

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