Buying an Airbnb Short Term Rental Property Investment

Buying an Airbnb Short term Rental Property investment NashvilleAs Nashville has rocketed to the top of the bachelorette party destination list, so has the rental demand for Airbnb properties close to the downtown core. Owning a short-term rental can be a financial windfall for owners, but make sure you do your homework first. If you are considering making an investment in a short-term rental property in Nashville, here are a few things to consider:


The City of Nashville Regulates Airbnbs

Your property must be properly zoned, your neighborhood and HOA both allow short term renting and you must obtain a short-term rental property permit from Metro Codes in order to operate a short-term rental business from your property. As of January 1st, 2018, there are only 2 types of permits: Owner Occupied and Non-Owner Occupied.

Owner occupied short term rental permits: must be your primary residence, must be owned in your personal name (no LLCs, GPs, joint ventures, etc), must be confirmed by 2 documents showing the owner in fact occupies as their primary residence, must be in a neighborhood or homeowners association that allows short term renting, may include the rental of a single room or the entire residence.

Non-owner occupied short term rental permits: must be in a properly zoned non-residential district, are not a primary residence, applicant information must match the recorded deed, must be in a neighborhood or homeowners association that allows short term renting.

Obtaining a Short Rental Permit is Hard Work

Like dealing with most government entities, the Nashville Metro Codes department can steal small pieces of your soul. However, if you come prepared for long lines, overworked employees and all required materials, you’ll be just fine.

To obtain a short-term rental permit (STRP in our jargon), you’ll need several items including: a floor plan of your property showing egress windows, doors and smoke detectors; proof of liability insurance; proof of notification to adjacent property owners; proof of tax payments; responsible party documentation; homeowners association affidavit; and a notarized affidavit. Once you gather these materials, you’ll then meet with a zoning examiner who will start the application process. If you pass, the fire marshal will schedule a verification inspection at your property fairly quickly. If you pass again, congratulations, pay a $50 permit fee, post your permit on all listings, remit your required taxes and don’t forget to renew your permit every 365 days.

Oh, did I mention you must also obtain a Hotel Occupancy Privilege Tax Account Number, collect and remit those taxes for each rental to the State Finance Department no later than the 20th day of each month following collection and there is a maximum of 4 sleeping rooms per STRP permit? Sound a little daunting? Don’t fret. Many Nashville Airbnb property managers include permitting your property and processing all applicable taxes in their menu of services and I highly recommend you take them up on that offer!

A Nashville Airbnb Property Will Diversify Your Investments

Even if you own other rental properties, Airbnb rentals compete in a different market segment than traditional types of real estate. And if real estate is not currently a part of your investment portfolio, short-term rentals can be an easy way to dip your toe into the pool. Through asset diversification, you help insulate your investment portfolio from market volatility. What’s more, the revenue from short-term rentals may be able to cover more than just the mortgage on the property and this can be an attractive way for first-time real estate investors to get into the market. In many instances, Nashville Airbnb owners have been able to pay off their entire investment property mortgage in less than 5 years, giving them a free and clear asset that can be leveraged into additional investments.

High-Rise Condos Play by Different Rules

There are 9 gleaming high-rise condo buildings in Nashville that are simply breathtaking. They have amazing neighborhood locations, amenities, concierge services and panoramic views of Music City. But, they all have bylaws that forbid them as being used as short-term rentals. Period.

For instance, the Encore condos in downtown Nashville have bylaws that state “no more than 20% of units can be investor-owned and all leases must be at least 360 days in length.” In fact, for those who violate these rules, the fines can get rather steep, exceeding $1,000 per day. Similar rules and fines hold true for Twelve Twelve, Icon, Terrazzo, Adelicia, Viridian, City Lights and practically all condo developments in Nashville.

For a condominium development to allow short-term rentals, the association must amend their bylaws to specifically allow such arrangements. Currently, only the following condo developments allow short-term rentals:

Generally, all planned unit developments (PUDs) have bylaw rental restrictions. These may be developments that include single family homes, townhomes and/or flats, but all have a homeowner’s association. Most attached and detached horizontal property regimes (HPRs) also have short term rental restrictions. There are even entire municipalities that have restrictions like the city of Brentwood that disallows short-term renting altogether.

Rental Property Tax Advantages

Under the new federal tax law that went into effect on January 1, owners of rental properties that are operated as businesses will be able to deduct mortgage interest on these properties, along with business expenses related to the rental. If you operate your Nashville rental as a business, you may also be able to deduct up to 20 percent of net rental income from your income taxes. As always, consult your tax accountant or attorney for advice.

Research Your Potential Airbnb Investment

Only you can decide whether investing in a short-term rental property is right for you. As with any investment, due diligence is warranted. Here is an excellent article on Smart Money Nation that gives you insight into owning an Airbnb and provides a handy calculator.

Once you have decided to pursue a short-term rental investment property, lean on my experience as one of the most well versed and skilled real estate brokers in Nashville. Over the past year, I have represented 71 short-term rentals and have access to several proven rentals that are not currently on the market. Leverage my relationships with local Airbnb management companies to negotiate lower management fees and use my relationship with builders and developers to secure a pre-construction property before it hits the MLS. Call/text me today to begin the process.

Grant Hammond

Broker, ABR, SFR ePRO

(615) 945-7123

Contact Grant Hammond
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