Many already know that real estate is the most common way to financial freedom. There are many ways a person could earn money through real estate, but short term rentals have become a common real estate business.
New Orleans is a tourist hotspot, therefore short term rentals could be an advantageous business due to high demand. The city has laws regulating short-term rentals to benefit the city as a whole.
NOLA Short Term Rentals
Until the spring of 2017, homeowners weren’t able to lease their homes short term. The city of New Orleans considers vacation rentals rented for less than thirty days as a short term rental. They are likely to be rentals available on platforms like Airbnb and VRBO.
Defining Short Term Rentals and Their Requirements
There are requirements that further explain what is defined as a qualified short term rental.
- Short term rentals cannot be outdoors, in an accessory structure, or recreational vehicle
- There must be an in-town property manager if the owner or operator is out of the area during the time of rental
- The property cannot cause a nuisance to the community, meaning short term rentals cannot:
- Host any commercial or social events
- “Adversely affect the residential character of the neighborhood”
- “Generate noise, vibration, glare, odors, or other effects that unreasonably interfere with any person’s enjoyment of his or her residence”
Economic Benefits of Short Term Rentals
New Orleans representatives worked on some of the tax revenue from STRs to be used for the direct needs of the city. New Orleans generates millions of dollars of tax revenue to the local economy.
Residents benefit from the tax revenue because it’s collected and dedicated to improving the quality of life in New Orleans. This means revenue would go towards the needs of emergency medical services and improving infrastructure.
There could be as many as 8500 vacation rental properties in the city of New Orleans. Residents have understood the financial benefits of owning rental property such as:
Subsidizing Income
An Airbnb report revealed that New Orleans hosts earn an average of $10,000 a year in renting out space to tourists. Also, a majority of tourists said they would revisit New Orleans if possible in the future.
Airbnb also reports receiving $150 million in economic activity generated by guests using Airbnb. This was accumulated by approximately 267,000 guests from July 1, 2015, to July 1, 2016.
Potential Tax Break Benefits
Consult with a tax advisor or CPA regarding specific tax breaks.
The Potential for Increased Property Value
If an owner decides to ever sell their rental property, the property value could be higher at the point of sale.
Corporate Rental Opportunities
Large corporations often rent homes for offsite meetings, product launches, or even housing for new hires. If an owner has the type of rental property the corporation is looking for, they may even pay a higher rate.
Other than financial benefits, rental property owners can also experience other benefits for having vacation rentals in New Orleans. Owners will be able to learn new skills like negotiation, meet new people from all over the world, and use large platforms to attract tourists.
Licensing for Short Term Rentals
As of December 2019, there are currently 3 different licenses for renting out properties for the short term on various platforms such as VRBO.
The Type A (Accessory) License allows a permanent resident to rent out spare rooms in their property, or they rent half of a double family unit.
- Up to 3 bedrooms can be rented out (up to 6 guests)
- Must show proof of homestead exemption
- Must get approval from Safety and Permits
The Type C (Commercial) License allows property owners to operate their short term property as a commercial business in nonresidential districts.
- Can rent out up to 5 rooms for up to 10 occupants
- Must get approval from Safety and Permits
- Must obtain a change of use permit
- Must obtain permitted use in most the nonresidential districts
- At least 1 parking space per 2 guestrooms and at 1 bicycle space per dwelling (25% of bicycle spaces must be long term spaces of the owner
The Type T (Temporary) License allows property owners to rent out the entire dwelling as a short-term rental for up to 90 days.
- Can rent up to 5 bedrooms (up to 10 guests)
- Must get approval from Safety and Permits
- Obtain a temporary use permit
- Short term renting can be operated by the renter, but with the owner’s consent
- The owner does not need to be present
Since the Type T license has a 90 day duration period, the 90 days can be determined in certain periods or a continuous 90 day period. If the applicant decides to account for the 90 days in separate periods, a new license will have to be filed or approved.
All licenses are prohibited in the French Quarter with the exemption of C license holders with properties along Bourbon Street. However, it is still possible that some short term rentals are operating in the French Quarter. Properties could be grandfathered in as a “legal noncomforing use.”
The city would usually issue a cease and desist letter and may even file an injunction to stop illegal use of property, but often doesn’t. If illegal use has not stopped in a particular time frame, the use becomes a legal conforming use, and the illegal activity (short term rentals in the French Quarter) is then grandfathered in.
The statute of limitations for short term rental violations are 10 years for the New Orleans area. If an owner can prove they have operated that long in the French Quarter, they can otherwise run legitimately despite laws.
Steps to Determining the License A Property Needs
Navigate to the City of New Orleans Property Viewer and enter your address. If you have a commercially zoned property, you are limited to a Type C license. If you have a residentially zoned property, you may choose between Type A and Type T licenses.
If in a residential zone, the next step is to determine if there is a homestead exemption on the property. Homestead exemption allows property owners to reduce the property taxes of the home they live in the majority of the time.
If the property does not qualify for a homestead exemption, then you’re limited to a Type T license. If you do qualify for a homestead exemption, then a Type A or Type T license can be chosen.
Fees for Short Term Rental Licenses
- Type A (Accessory) Short Term Rental License – $200
- Type T (Temporary) Short Term Rental License – $150 (could be $50 if qualified for homestead exemption)
- Type C (Commercial) Short Term Rental License – $500
If a Type T applicant decides to have specific periods for the 90 days, they will incur more costs by having to file more than once annually.
Regulations and Limitations
The city of New Orleans has put laws and regulations in place for short term rentals. Platforms such as Airbnb are working with the city to help confirm that renters are in compliance.
Penalties
Penalties for short term lease violations are in place to enforce regulations of the city for rentals. Failure to comply with city regulations result in:
- Daily fees
- Revocation of the rental license
- Property liens
- Discontinuation of electric service
Enforcing the 90 Day Limit on Type T Licenses
To avoid penalties under the Type T license, there are a few issues to be aware of so that the property owner can stay in compliance.
Taxes
The taxes could be different on month-long rentals versus short-term rentals less than 30 days. Track those incomes separately to be on the safe side. This should be discussed with a tax advisor for clarity.
The platform the rental property is advertised on could collect and remit sales and uses tax. The property owner needs to determine if the tax is removed on 30-day rentals on the platform they are using. The guest could be getting charged more than they should if taxes are collected on the long-term rentals. Again, consult with a tax advisor for more thorough information.
Lease Agreement
A lease agreement should be on hand, just in case. If the city decides to penalize the property owner for exceeding the 90-day limit, they can prove that all nights booked were short term rentals. The lease agreements can provide evidence that all rentals were short-term.
When the 90 Day Limit Doesn’t Apply
After Hurricanes Irma and Harvey, Airbnb made the decision to waive service fees for hosts accommodating evacuees free of charge. Many have wondered if the 90-day limit applies when accommodating guests seeking hurricane refuge.
The city law defines a short-term rental as the rental of any dwelling unit for lodging and sleeping purposes. Therefore, to rent something requires payment. In the case of providing a place to stay for evacuees for free, it’s more so a donation than a rental.
Since this is the case, the 90 day limit does not apply and sales and use taxes should not incur. If the city makes an attempt to charge fees to the rental owner for exceeding the 90 day limit, it’s best to have proof of when the evacuees were accommodated.
This can be done by having the evacuees sign a short statement disclosing the number of nights they would be staying there and that it would be free of charge. Rental owners need to also collect names and mailing addresses of evacuees just in case they need to be reached.
The City Working with Platforms Like Airbnb
It was presented to council members from the Planning Commission that platforms like Airbnb would have an agreement with the city of New Orleans. According to the presentation, “Airbnb and other platforms have agreed to sign collective agreements with the city to collect taxes and fees.”
These platforms have been rumored to offer ‘pass-through’ registration, where the platform collects the owner’s application information and provides it to the city for processing. Other information can be gathered such as:
- Total number of short term rentals listed on the platform
- The total number of nights that each listing on the platform was rented to guests
- The cumulative tally to date of the number of nights that each listing on the platform is booked for rental during the remaining months of the applicable calendar year
- A notation indicating the permit type for each property
- The total amount of tax collected by the platform and remitted to the city
Airbnb has been slow to respond to the city, citing staffing issues. Expedia has refused to comply with the city at all so there’s a bit of difficulty in using the platforms to help enforce short term rental laws.
If platforms are going to continue to refrain from assisting the city of New Orleans the city could ultimately end up one of two thighs later on:
- Eliminate the 90-day regulation on License T rental owners
- Remove Type T licenses entirely
The city has not expressed concerns with regulating commercial (type C) licenses no accessory (type A) licenses.
Administrative Subpoenas
The city of New Orleans announced that they’d be issuing administrative subpoenas to enforce short term rentals. They are putting the most focus on the French Quarter as short term rentals have been banned since the 1950s, and also the 90 day limit regulations.
To define more of what an administrative subpoena is and what it will contain is stated by New Orleans law. Under Section 26-620 of the municipal code, violations are likely to result in an administrative subpoena.
The city shall have the authority to subpoena information in short term rental hosting platforms. Any such administrative subpoena shall:
- Be submitted in writing by the city attesting that the city has a reasonable belief based on evidence that a short term rental may be in violation of this article or of applicable provisions of the Comprehensive Zoning Ordinance
- Be sent to short term rental hosting platforms via regular and certified mail
- Be related to a specific investigation by the city relating to a single short term rental that is specifically identified in the subpoena, and alleges the specific violations of this article or of the applicable provisions of the Comprehensive Zoning Ordinance
The platforms shall notify their user of the information requested in the subpoena within ten days of receipt of the subpoena and produce the responsive records within 30 days of providing notice to the user, except to the extent that the user has sought relief in a court of competent jurisdiction.
The mayor’s office enforces the law by interpreting as they see fit, being that the law is vague. Meaning they are capable of retrieving any information the platform has on the property. They have procedures for issuing the subpoenas in regards to investigations on the proper collection of sales and use tax. Consider Section 150-487 of the municipal code:
The director [of the department of finance] or any deputy thereunto authorized by him may by a subpoena compel the attendance of witnesses and the production of any books, records, papers, vouchers or accounts of any dealer or of any person whom the director has reason to believe has information pertinent to any matter under investigation by the director at any hearing held pursuant to the provisions of this article.
This all means the city could issue a subpoena to anyone they believe has any information related to the collection of sales and use tax on a property. In this situation, it’s best for the rental operator to turn over books and records. Otherwise, they will have to get a lawyer to fight the subpoena or face penalties for non-compliance.
What specifically must be turned over in a subpoena?
Since the scope of the subpoena could be very broad, this could arguably include:
- Bank records
- Detailed accounts of bookings
- Communication with guests
If failing to comply with a subpoena, fines could be issued starting at $100 a day. If the fines escalate to high, the city will get a judge involved to enforce the subpoena. If an owner decides they do not want to comply, they need to reach out to a lawyer. Ultimately, platforms do not receive penalties for the lack of compliance.
