The following information will aid you in making a more informed decision regarding your next short-term rental venture in Boston and prepare you for what to expect from the process.
For 2021, AirDNA predicts a strong year for the short-term rental industry. Occupancy is expected to average around 58.9% with average daily rates projected to rise 6%, too, hitting about $248 for the typical property. Demand is forecast to jump 27.5% by the end of the year.
"Rental Arbitrage" has evolved into a ubiquitous phenomenon in the rental industry. Even in spite of the pandemic, short-term rentals had over 70% occupancy. In the second quarter of 2021, short-term rentals in coastal destinations grew by more than 20%. The effect of this has been to push revenue earned per unit up while apartment rents have been stagnant, allowing for growth in rental arbitrage. According to Scott Shatford, CEO of AirDNA: "Rental arbitrage is taking on a whole new meaning in 2021". What was once seen as ‘house hacking’ has now become a fully streamlined, transparent way for renters and owners to both benefit from flexible living.”
In a new report, non-dense coastal destination markets were identified as major arbitrage locations in 2021.
A Rental arbitrage is when an individual rents property for the long term and then rents it out on OTAs such as Airbnb, Vrbo, Booking.com, HomeAway, etc. This means that you’re using short-term rentals to pay your long-term lease and pocketing the difference.
Rent arbitrators benefit from the following features:
In 2021, Boston city will be a market to watch if you are considering investing in property or considering rental arbitrage in this behemoth city. Boston ranked as the 9th best real estate market in the US according to a report by Urban Land Institute.
Massachusetts' largest city, Boston, has a population of almost 695,000 residents and is also the state's capital. As one of the most populous cities in the United States, Boston ranks with the sixth-largest economy. The Boston economy is diverse and rapidly growing, and the rental market is one of the most important aspects of the city's ecosystem. It is known in both the national and international property markets that Boston is a major tourist destination. Over 21 million people visit the city each year, including both domestic and international tourists. They include both leisure and business travelers.
According to Boston property investment data, the median property price of property listings in the city increased by 16% year on year. The annual growth in the price per square foot amounted to 15%, from $699 in 2020 to $802 in 2021. This is a major increase that exceeds the average real estate appreciation rate across the US housing market over the same period. This trend demonstrates the resilience of the Boston property market even in the face of the global pandemic and shows that this is indeed one of the top places for investing in rental properties.
According to AirDNA 2021 data, Boston Short-Term Rental Arbitrage Opportunity tools are as follows:
Limited Share Units have a private bedroom or shared space in an owner-operator's primary residence. The owner would be present during the rental. The fee for this type of unit is $25 per year. Occupancy is limited to three guest bedrooms or six guests, whichever is fewer.
Home Share Units have a whole unit available for a short-term rental at the primary residence of an owner-operator. The fee is $200 per year. Occupancy is limited to five bedrooms or 10 guests, whichever is fewer.
Owner-Adjacent Units are within owner-occupied two or three-family buildings. In this situation, the owner lists a single secondary unit as a short-term rental. The fee is $200 per year.
Pay close attention to the following notes as well :
In order to be eligible to register and rent one’s home on a short-term basis, property owners must first ensure their home is eligible and is within a property classified as residential use, and does not violate any of the following criteria.
A short-term rental is not permitted in the following homes:
Residences cannot have been subject to three or more violations of any city ordinance or state law within the last six months
Residencies cannot have any outstanding violations relating to:
♦ Short-term rental ordinance ♦ Excessive noise ♦ Improper disposal of trash ♦ Disorderly conduct ♦ Sanitary, building and fire code violations.
The following buildings cannot be used for short-term rentals, despite being classified as residential:
Among other restrictions and requirements, short-term rental units are not permitted to be located within problem properties or within properties owned by problem property owners. You can find more information about problem properties in the City of Boston Code of Ordinances.
Once you’ve ensured that your home meets the necessary requirements to host a short-term rental, you can sign up and register your property on the city of Boston’s short-term rental registration webpage.
In order to register, you will need to provide Inspection Services with at least two of the following items as primary residence evidence:
Note, Violation of any of the Short-Term Rental laws or codes along with those mentioned above will cause a suspension of one’s short-term rental license. The suspension will last for as long as the violation exists.
Along with registering your property as a short-term rental with the City of Boston, aspiring hosts will also need to obtain a business certificate through the city clerk’s office. In order to apply for a business certificate, you will need to fill out the business certificate form which includes a filing fee of $65. Business certificates are valid for four years and must be renewed using the same form linked above.
You will need a copy of your registration number form as well as the business certificate for your short-term rental in order to file for the certificate. To apply for a business certificate at City Hall, you must submit your documents, payment, and completed form.
The Boston Zoning Code sets out the zoning regulations for Boston's neighborhoods. Make sure your listing does not violate any zoning definitions by consulting Article 2 of the Zoning Code. Important definitions include "use," "accessory use," "dwelling," "lodging house," "boarding house," and "family."
The law applies a 5.7% state excise tax on short-term rentals. Boston, which will be allowed to tax short-term rentals at a 6.5% rate. The City of Boston excise and convention center taxes may apply to your listing as well. In addition, the Massachusetts excise tax may also apply. It would be subject to a 2.75% convention center financing fee.
Moreover, short-term rentals would be subject to taxes unique to them. Towns and cities could impose a “community impact fee” of up to 3%. Depending on the municipality or city where short-term rentals are located, the total tax could be up to 17.45% - or 17.95% in Boston - if the local tax component is added to the community impact fee. Refer to the Massachusetts Room Occupancy Tax Guide for more details.
The tax will apply to the total rent paid by guests, which includes services, cleaning, and other fees.
As of July 1, 2019, Massachusetts state law requires certain intermediaries to collect and remit these taxes to the appropriate parties. As a result, Airbnb will collect and remit these taxes for short-term rental hosts in Boston. In addition, Massachusetts state law requires that you register with the State’s Department of Revenue
Boston provides considerable rental arbitrage potential as one of the emerging markets in the US. As rental arbitrage serves as an ongoing growth model for short-term rental properties, many investors may be able to take advantage of this trend in the market and get on board within a reasonable amount of time without incurring excessive capital expenditures.
Check out these other markets that offer rental arbitrage opportunities too: Houston, Austin, Orlando, Nashville, Myrtle Beach, Fort Lauderdale