Rental Arbitrage in Houston | What You Should Know!

Hosts and property managers of short-term rentals look at rental arbitrage as a means to increase their portfolio, as it could be expensive to go out and purchase properties in order to expand. Statistics indicate towards Houston, Texas as being a very lucrative city for the vacation rental market. Accordingly, Houston being a popular tourist destination is among the 50 best cities to make money through short-term rentals, and as of 2018 hosts earned 72 million in supplementary income via Airbnb alone.

For those living in Houston, it would be ideal to take advantage of this opportunity and list their property as a holiday rental. However, while Houston does not have a Short-term Rental Ordinance in place yet, there are a few strict rules governing the business as you might want to be aware of to avoid potential penalties that may cost you and your business bitterly. Listed below are the key regulations to be mindful of:

Hotel Occupancy Tax

In order to allow the City of Texas to benefit from the impact that vacation rentals have on the economy, hosts are required to collect an “Occupancy Tax” from guests. The hotel occupancy tax comprises 7% and a further 6% in cleaning fee for visits of 28 nights or shorter. Visit the City of Houston Hotel Occupancy Tax website for detailed information.

The Hotel and Motel Ordinance

This defines and regulates short-term rentals within the city limits. Anyone building a hotel or motel must apply for a Hotel/Motel permit from the Planning Department in addition to a standard building permit.

The hotel/motel permit application fee is $200 and an additional $200 if there is a variance.

The Houston Planning Commission must approve any variances to the Hotel/Motel ordinance. For more information, e-mail planning.hotel-motel@houstontx.gov.

Building And Housing Standards:

The building and housing standards law governs the construction and standards for design and maintenance for buildings. This includes regulations on habitability, health and safety. Contact the Code Enforcement Division for more information

Other Rules:

Apart from the ones mentioned above, there are a few other rules that potential holiday rental hosts must be aware of when considering properties in Houston

The Multiple Dwelling Law:

This law applies to buildings with three or more separate rental units and is divided into hosted rentals and unhosted rentals.

Hosted Rentals:

This arrangement requires the host to be available on the property throughout the course of the stay. The duration of stay at hosted rentals can be limited, however, guests have access to all areas of the rental unit during this time.

Unhosted Rentals: Unhosted rentals of less than 30 days are prohibited under the multiple dwelling law for Houston. This law is applicable only for “Class A Dwellings” in the region.

Condominiums

When considering condominiums, hosts must check if the building is a class “A” building in which case Multiple dwelling laws apply. Additionally, a building's HOA (Homeowners association) may have restrictive bylaws which may make renting out the space challenging

Rent-Stabilized Buildings

Rent stabilized buildings pose more restrictions for hosts particularly in the rental amount you can charge. A point to note is that it is actually illegal to make profits in such buildings through vacation rentals.

However, since these units do not usually have any specific rules regarding short-term rentals there may not be an issue. The only problem that hosts may need to overcome is if others in the building are uncomfortable about non-residents moving about the building.

Reasons For These Laws And Regulations

With increasing numbers of commercial investors entering the vacation rental business, these laws and regulations were primarily created to control the overall rental market of the area and make accommodations affordable for locals.

The second reason is to help the economy of Houston to grow by improving its income and not allowing a surge in hotel prices in the locality while giving local homeowners access to an additional income.

In Conclusion:

There are quite a few regulations to be looked into and the fines are steep if found guilty of any disregard of the law. But there’s good news! Keeping up with the local laws with regards to short-term and other associated rentals will have you hosting without an issue. If you follow the local laws and regulations you’ll surely have nothing to worry about!