Want To Handle Your Own Rentals? Know The Rules…

By Paige Townley

The phenomenon of renting by owner has grown more desirable for many owners during the last several years, thanks to the ability to communicate and market via the Internet and the current economic climate, said Bill Bender, broker and owner of Bender Realty, based in Gulf Shores, Ala. But renting by owner is not without its drawbacks, he said, adding that owners who do not use rental management companies must pay extra attention to rules and regulations governing the practice.

For Denise Hallford, who owns two condos in the Gulf Shores area, renting out her own properties for the last three years has become like a full-time job. “In prime months, I answer five to six emails a day. I don’t necessarily get all of those rentals, but I’m working to answer them to provide all of the information they need. For me, rental companies themselves just charge too much money.”

Although there are financial savings involved for owners who take on the role of renting their own units, “There are a host of things that go on behind the scenes that a professional property management company takes care of for the owner,” Bender said. “The advertising—we have the ability to reach a far broader spectrum to get the owner’s unit out there in front of the public—maintenance, housekeeping, government regulations like paying the lodging taxes, and even just the security of handing out the keys.”

Tax rules and regulations alone can be time-consuming. There are local, county, and federal rules and regulations. For example, in the city of Gulf Shores, owners must first file for and receive a business license. “The licensing is pretty straightforward, and typically a license is approved the same day it’s applied for,” said Bill Fetner, revenue clerk for the city. “It’s important owners get a license because the city can charge owners for back years if they are caught renting without a license.” Also of importance is the number of properties being rented. A business license must be issued for each individual property, Fetner said.

Once a license is issued, owners must them begin charging and remitting taxes. In Gulf Shores, 11 percent must be charged for lodging to cover remittances, Fetner explained. Five percent must be remitted to the city, 2 percent to Baldwin County, and 4 percent to the state of Alabama. “Just like with the licensing fee, the condo location can affect the tax rate,” he said. “If the unit is in the police jurisdiction instead of the city, the city’s rate falls to 2.5 percent.”

Taxes must be remitted every month, regardless of the amount collected. Failure to report and to pay on time can lead to stiff financial penalties. “Even if no one stays at your unit for the month, you still have to file a report,” Fetner said. “Owners must do that every month as long as the unit is out there for rent.”

These tax rules and regulations vary in every city and state, so it’s critical for owners to research the laws that actually apply to their properties.

According to the Florida Department of Revenue, most Florida counties have a discretionary sales surtax, local option tax, tourist development tax, convention development tax, or tourist impact tax on rentals that owners must be sure to remit. Owners must also obtain a license from the Florida Department of Business and Professional Regulation, as well as a sales tax registration number and a federal employer identification number. In addition, rentals must be registered with the Florida Department of Revenue, said Jim Evers, program director for general tax administration.

In the city of Panama City Beach, if an owner rents a unit for six months or less, the rental income is subject to a 6 percent state of Florida sales tax, 5 percent Bay County tourist development tax, and 1 percent Panama City Beach license fee.

Similar to Gulf Shores, Panama City Beaches requires taxes to be remitted monthly, regardless of whether or not the unit had actually been rented for the month, said Susan Griffin, certified business tax official for Panama City Beach. However, depending on the tax amount owed, remittances for the state of Florida must be filed either monthly, quarterly, semi-annually, or annually, Evers said.

Like Hallford, condo owners Joan and James Burke have chosen to handle their own rentals and have found ways to make their process easier. “It takes a lot of time managing it ourselves, but we handle it all,” she said. “To keep things like remittances straight, we actually use an accounting program that helps break everything out for us and manages how much we owe. James takes care of that every month. By using that program, it’s really simple. And by doing it all ourselves, we actually get to know the people who rent from us, and most of our people come back. Usually if a couple rents from us one season they’ll come back the next year. We have a lot of repeat business because we give it a personal touch.”

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