Of all the categories shaken up by the sharing economy, few are as transformed as lodging. For travelers, ditching the hotel for Airbnb can be a more affordable way to go. And on the flip side, offering your own home or apartment to vacationers can earn you cash—$100 to $150 a night on average, according to Airbnb, much more in some popular destinations.
That can be fairly easy money. Unless something goes wrong, in which case it can be a disaster. You need to protect yourself from legal and financial risks. Here’s what home sharers should know.
Assess Your Earning Power
If you want to rent out a room in your home while you are living there, you can post an ad for free at Airbnb, which takes a 3% cut of your rental fees, plus an additional 12% to 15% “service fee” from your guest. You set your own price; the site verifies users’ identities and provides guest and host reviews.
You can also rent your place while you’re away through Airbnb, or through vacation rental sites like VRBO and HomeAway, which charge a flat annual fee of $350 if you’re a regular user, or 10% of each rental if you’re just dabbling.
Understand Your Risk
Depending on where you live, short-term rentals could violate municipal laws or homeowners association regulations. You might be required to pay an occupancy tax or get a special hotelier’s license. (Consult a lawyer or visit town hall to check local rules.) If you rent for more than 14 days a year, you’ll also need to report the income on your taxes.
But those aren’t the big dangers. The worst-case scenario is that a guest burns down your home or gets injured there, in which case your standard homeowners policy may not cover the claim. “So that $2,000 rental fee could turn into losing everything you’ve got,” says San Francisco attorney Tad Devlin, himself an Airbnb host.
Play It Safe
Don’t just rely on the home-sharing site’s standard insurance plan, because the coverage is generally too ambiguous, says David Reiss, research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School. Your existing homeowners policy may cover you for a single rental of less than two weeks, but call to ask.
More than that and you’ll need to switch to a commercial policy, which covers paying guests and typically costs an additional $500 per year, says Scott Wolf of CBIZ Property & Casualty.
Or try home swapping. For a small annual fee, sites such as HomeLink and HomeExchange connect people who want to visit each other’s location; because no money changes hands, you may avoid tax and liability issues. Still, check with your insurer—and of course, you need to be extremely cautious about who you let into your house. As a rule, none of these sites conducts background checks, so do your own by Googling guests and searching their social media accounts.
“Five years from now, the laws and the insurance policies will have caught up with the sharing economy,” Reiss predicts. “For now, though, it boils down to how risk averse you are.”