Welcome to the Sharing Economy, spearheaded by internet-based marketplaces like Uber (drive people around in your car for cash), TaskRabbit (charge other people to pick up their groceries or assemble their IKEA furniture), and Airbnb (rent out your home or apartment nightly, weekly, or monthly). Some call these marketplaces game-changing, others disruptive.
These services clearly are here to stay because consumers love them. Airbnb has been in business since 2008, and today 425,000 people stay in Airbnb-listed properties on peak nights, according to CEO Brian Chesky.
Many Sharing Economy services, including Airbnb, check the backgrounds of its users and let both parties involved in the transaction, the unit’s actual tenant and his or her guest, rate each other online. According to The Economist, these safety measures and the power of social proof seem to be working well for the most part, but Airbnb rentals, nevertheless, raise some risks that could damage your company’s reputation.
Now that’s what I call disruptive.
To be clear, I’m not against the Sharing Economy. Far from it. I Uber with the best of them, I’m ready to give Airbnb a shot, and I’ve got three or four items fit only for a TaskRabbit. Although I raise some red flags for property managers in this article, Airbnb looks like a capital idea. Like The Hunger Games, the NFL, Red Bull, or the FOX News Channel, I just wish I’d thought of it first.
But letting your tenants rent out your units means they’ll grab all the glory and the gold while all you’ll probably end up with are headaches. In this article, I’ll address three of the biggest Airbnb problems you may face as a property manager, as well as what to do about them.
3 Risks That Airbnb Presents to Property Managers
Airbnb Rentals Can Threaten Other Tenants’ Security and Peace of Mind
The impact of Uber and TaskRabbit on your properties isn’t much different than of that of pizza delivery people. They’ll be at your property only as long as it takes to drop off a calzone or assemble your Kragsta coffee table, and then they’re gone.
Airbnb, on the other hand, is all about strangers living in your building or community, and that’s a different story altogether.
Unfamiliar faces coming and going, or loud, unexpected noises could ruin your relationships with good tenants, condo association members, and neighbors. Some Airbnb guests, despite passing background checks, still end up behaving badly, doing things they wouldn’t dream of in the comfort of their own homes.
For some cautionary tales, or a few laughs, check out these Airbnb horror stories.
You May End Up with Unexpected and Unwanted Tenants
Depending on your local laws, your property owners could end up with guests in their units who refuse to pay or leave.
In an infamous case of squatting that made the rounds of all the major news outlets this past summer, a San Francisco woman, Cory Tschogl, rented out her vacation condo in Palm Springs to two brothers, Maksym and Denys Pashanin. At the end of the six-week rental, part of the rent remained unpaid and the brothers wouldn’t leave.
The Pashanins had pulled this stunt before, but it was legal under California law, which says that anyone occupying a rental unit for 30 days or more has created a tenancy. Only after a lengthy and expensive eviction process was Tschogl able to uproot the Pashanin brothers.
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Issues for Your Owners Can Spell Trouble for You, Too
As your property owners’ trusted consultant, you’re expected to give them sound advice when it comes to leasing their properties, including ensuring that tenants aren’t secretly listing their units on Airbnb.
When owners suffer the consequences of running afoul of state law or local ordinances or run into other thorny issues, they might blame you for not warning them. And that can result in spoiling a great relationship and losing all the revenue and positive referrals that come with it.
Here a few examples of Airbnb problems that can land your owners in legal hot water, as summarized by attorney Richard D. Vetstein on the Massachusetts Real Estate Blog:
- In cities like Boston, you could face legal action if you don’t have a lodging license, which is mandatory if the lodgings “are rented to four or more persons not within the second degree of kindred to the person conducting the lodging.”
- Additionally, in Boston and other cities, Airbnb rentals are subject to room occupancy taxes, and we all know what happens when tax collectors don’t get their share.
- In the suburbs, zoning by-laws often determine whether single-family and multifamily homes can be rented legally via Airbnb.
According to James M. Murphy, a real estate attorney with Bletzer & Bletzer, PC in Boston, staying on top of state laws and local ordinances is an ounce of prevention you’ll never regret.
Murphy said, “The Airbnb situation in San Francisco highlights the need to review, or have an attorney review, the local and state ordinances before letting a guest stay in any property you own.”
Preventing & Solving Airbnb Problems
Unsurprisingly, the best way to ensure tenants aren’t renting out your units or homes on Airbnb is to make sure you create air-tight leases.
“Insert language into the lease that clearly says there will be ‘no subletting’ of the property,” Murphy said. “The owner in the Airbnb scenario also may have been well-served by stating clearly in the agreement that the ‘guest’s occupancy does not create a tenancy, of any kind.’”
But what if you haven’t yet had the chance to change the language about subletting in your leases? There are a couple things you can do:
- Always be on the lookout — Ask tenants and condo owners or homeowners in your association to report strange comings and goings. If you identify tenants or owners who list Airbnb rentals but their leases or community agreements don’t prohibit subletting, try and talk them out of continuing their side businesses. If a lease clearly prohibits subleasing, you can evict the tenant if he or she refuses to cooperate, but, as we know, that can be a long and costly process.
- Check out what a large property management company in New York City is doing to combat Airbnb leasing, including offering building managers $500 gift cards to drop a dime on those who violate the company’s policies.
- Use huntbnb — The huntbnb site pulls data from Airbnb and lets property managers, owners, and landlords quickly find out online whether their units are listed on Airbnb. Best of all, this service is free.
Airbnb and other Sharing Economy businesses are far from passing fads, and they’ll keep growing due to consumer demand and the boost to the wallets of service providers. According to Forbes, more than $3.5 billion will bypass traditional sellers and retailers and land in the bank accounts of those who know how to make money in the Sharing Economy.
As a property manager, clearly it’s important to understand the Airbnb pros and cons. Or your tale could be featured in the 2015 Top Ten List of Airbnb horror stories.
What would you do if you found tenants were renting out units under your management using Airbnb? Or if you have encountered a situation like this, what did you do?
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