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The rise of Airbnb has introduced an intriguing discussion within real estate circles: Should short-term rentals (STRs) like Airbnb be classified as Commercial Real Estate (CRE)? This question has wide-ranging implications, from how these properties are listed on marketplaces like Brevitas to their tax treatment and mortgage options. This blog post delves into these aspects to determine whether it's time to rethink our traditional categories of real estate.
What Makes Real Estate "Commercial"?
Typically, commercial real estate encompasses properties that are used exclusively for business purposes, generating income through rent or capital gain. These include office spaces, retail properties, industrial units, and multi-family housing units with five or more residences. On the other hand, residential real estate typically comprises single-family homes, condos, and multi-family units with fewer than five residences.
Should Brevitas List Airbnbs?
The question of whether marketplaces like Brevitas should list Airbnbs hinges on how one views the primary function of these short-term rentals. Are they a business generating income, or are they more aligned with residential real estate? Given the income-generating capability and operational complexities that come with managing an Airbnb, an argument can be made for listing them under the commercial real estate category.
Tax Implications
Commercial Real Estate Taxes
Commercial real estate often enjoys certain tax benefits, like depreciation over a shorter lifecycle and deductions for operational expenses directly related to the business activity.
Airbnb Taxes
Airbnbs often operate in a grey zone, making them subject to multiple forms of taxation. They're liable for income tax and potentially self-employment tax. Additionally, depending on local regulations, there may be transient occupancy taxes.
Can You Get a Commercial Mortgage for an Airbnb?
While it's more common to secure residential mortgages for single-family homes or small multi-family units, it is possible to secure a commercial mortgage for an Airbnb property. Lenders may consider the consistent and often higher-than-average revenue streams generated by Airbnb properties as a reason for providing a commercial loan.
Time for a New Asset Type Within CRE?
The unique nature of Airbnbs—a blend of residential property and profitable business—poses the question of whether a new asset class within commercial real estate should be created to accommodate them. Establishing Airbnbs as a new asset type could pave the way for specialized financing, tailored tax benefits, and a dedicated listing section on platforms like Brevitas.
Conclusion
The growing prominence of Airbnb in the real estate landscape forces us to rethink traditional classifications. Its hybrid nature offers both the familiarity of residential living spaces and the revenue-generating potential of a commercial entity. Perhaps it's time to acknowledge this duality by creating a new asset type within commercial real estate, one that would make room for these evolving property investments on platforms like Brevitas. As the real estate industry continues to adapt to market trends and innovations, the Airbnb model could very well find its home within the commercial real estate sector.
