McLennan County, Texas Short-Term Rental Regulation: A Guide For Airbnb Hosts

Starting a Short-Term Rental Business in McLennan County

To operate a short-term rental in McLennan County, Texas, which includes the city of Waco, you must obtain a license from the Development Services department. In some cases, a Short Term Rentals Special Permit is also required prior to issuance of a license, depending on the STR category and zoning district of the property.

The initial STR license application should include:

• Completed application form
• Application fee
• Proof of property ownership or authorization from the owner
• Site plan and floor plan
• Parking plan
• Proof of insurance
• Proof of registration with the State of Texas to pay Hotel Occupancy Taxes

Once the application is received, an invoice will be issued. After payment, a life safety inspection can be scheduled, which also has a fee. The license fee is due when all required items are received and the application is approved. Licenses are valid for two years and may be renewed subject to a renewal fee and proof of paid city and county hotel occupancy taxes.

To determine if a special permit is needed, you must know the STR category and zoning district. The zoning can be found using the City of Waco Interactive Zoning Map or by contacting the Development Services Department. Special permits are required for:

1. Bed and Breakfast Home Establishments (BBHE) in zones R-E, R-1A, R-1B, and R-1C
2. Bed and Breakfast Inns in zones R-3A, R-3B, R-3C, R-3D, R-3E, O-1, and O-2
3. STR Type I in zones R-E, R-1A, R-1B, and R-1C

All licensed STR advertisements, marketing materials, and online listings must prominently display the assigned license number and occupancy limit.

As of August 1, 2017, STRs in McLennan County are subject to a combined 15% hotel occupancy tax (7% to Waco, 6% to Texas, 2% to McLennan County). The city and county have contracted with Avenu to collect these taxes at no additional cost to operators.

Investors looking to start an STR in Waco should be prepared to spend $350,000-$700,000 for a property, depending on size and proximity to downtown, and will likely face competition from cash buyers. Downtown Waco has multiple new hotels coming, including Chip & Joanna Gaines' Magnolia Hotel, which will directly compete with STRs. Patience and looking for off-market deals is recommended in the current tight Waco STR market.

Short-Term Rental Licensing Requirement in McLennan County

To legally operate a short-term rental in unincorporated areas of McLennan County, Texas, property owners must obtain a license from the county. The licensing process is managed by the McLennan County Commissioners Court.

According to the McLennan County website, the following requirements must be met to obtain an STR license:

1. Completed application form
2. Application fee of $100
3. Proof of property ownership or authorization from the owner
4. Site plan showing the property boundaries, structures, and parking
5. Floor plan indicating bedrooms, bathrooms, and common areas
6. Parking plan with at least one off-street space per bedroom
7. Proof of liability insurance with a minimum of $500,000 coverage
8. Designated local contact person available 24/7 if owner resides outside the county

The application and required documents should be submitted to:

McLennan County Commissioners Court
County Courthouse
501 Washington Ave.
Waco, TX 76701

Once the application is received, the Commissioners Court will review it within 30 days. If approved, the applicant must pay a $200 license fee. The license is valid for one year from the date of issuance and must be renewed annually.

Inspections are not typically required for the initial license. However, the county may conduct inspections at any time to ensure compliance with health, safety, and nuisance regulations. Violations can result in fines of up to $500 per day.

Operating an STR without a valid license in McLennan County is subject to penalties. First-time offenders may receive a warning, while repeat offenders can face fines of $200-$1000 per day of operation without a license. The county may also seek an injunction to prevent continued illegal rentals.

It's important to note that properties within incorporated cities like Waco are subject to the city's STR regulations and licensing requirements, rather than the county's. Owners should check with their local city government for specific rules.

Required Documents for McLennan County Short-Term Rentals

To obtain a short-term rental license in unincorporated McLennan County, applicants must submit the following documents to the Commissioners Court:

1. Completed application form: This provides basic information about the property owner, STR location, and operational details. The form is available from the Commissioners Court office.
2. Proof of property ownership: A deed or title demonstrating the applicant's legal ownership of the rental property. This can be obtained from the McLennan County Clerk's office.
3. Owner authorization: If the applicant is not the property owner, written permission from the owner to operate the STR is required. The owner can draft an authorization letter.
4. Site plan: A scaled drawing showing the rental property's boundaries, structures, and parking. This helps verify compliance with county regulations. An architect or surveyor can prepare the site plan.
5. Floor plan: A layout of the STR's interior, indicating bedrooms, bathrooms, and common areas. This is used to determine occupancy limits. The floor plan can be sketched by the applicant or professionally drafted.
6. Parking plan: Documentation of the number and location of off-street parking spaces for guests, with at least one space required per bedroom. The spaces must be clearly delineated on the site plan.
7. Proof of insurance: A certificate of liability insurance with a minimum coverage of $500,000. This protects both guests and the county. Insurance can be obtained from licensed providers.
8. Local contact designation: If the owner lives outside McLennan County, they must designate a local contact person to be available 24/7 to handle any issues that arise. The contact's name and information is submitted with the application.

These documents help McLennan County ensure that short-term rentals are operated safely and in accordance with local regulations. The Commissioners Court reviews applications within 30 days, and if approved, the operator pays a $200 license fee for a one-year license. Failing to provide the required information can result in the application being delayed or denied.

McLennan County Short-Term Rental Taxes

When operating a short-term rental in McLennan County, Texas, it's crucial to understand the applicable hotel occupancy taxes. As of August 1, 2017, STRs are subject to a combined 15% hotel occupancy tax, broken down as follows:

1. City of Waco Hotel Occupancy Tax: 7% of the rental price. This tax is imposed by the City of Waco and is used to promote tourism and convention activities within the city.
2. State of Texas Hotel Occupancy Tax: 6% of the rental price. This state-level tax applies to all STRs across Texas.
3. McLennan County Hotel Occupancy Tax: 2% of the rental price. This county-level tax is in addition to the city and state taxes.

The hotel occupancy taxes are imposed on the guest occupying the rental property and must be collected by the STR operator. The City of Waco and McLennan County have contracted with Avenu to collect these taxes at no additional cost to operators. Avenu can assist with setting up an account and remitting payments, including any back taxes owed.

It's important to note that the 15% hotel occupancy tax is separate from any income taxes the STR operator may owe on their rental income. The occupancy taxes are a pass-through tax, meaning the operator collects them from the guest and remits them to the appropriate authorities.

Possible Write-Offs and Deductions

STR operators in McLennan County may be able to claim certain expenses as tax deductions to reduce their taxable rental income. Some common deductions include:

1. Mortgage Interest: If the rental property has a mortgage, a portion of the interest paid may be deductible.
2. Property Taxes: STR operators can typically deduct the property taxes paid on their rental property.
3. Repairs and Maintenance: Costs associated with cleaning, repairs, and general upkeep of the rental property are usually deductible.
4. Utilities: A portion of utility expenses, such as electricity, gas, water, and internet, may be deductible if they are necessary for the operation of the STR.
5. Insurance: Premiums paid for property insurance on the rental can often be deducted.
6. Depreciation: STR operators may be able to claim a depreciation deduction to account for the wear and tear on the property over time.

It's crucial for STR operators to keep accurate records of all income and expenses related to their rental property. Consulting with a tax professional can help ensure compliance with all applicable tax laws and maximize deductions.

By understanding the hotel occupancy taxes and potential write-offs, STR operators in McLennan County can better manage their finances and run a successful rental business.

Texas Wide Short-Term Rental Rules

While short-term rental regulations in Texas are primarily determined at the city and county level, there are a few statewide rules that affect McLennan County hosts.

First, the state of Texas defines a short-term rental as any residential property, "including a single-family dwelling or a unit in a condominium, cooperative, or time-share, that is rented wholly or partly for a fee for a period not longer than 30 consecutive days". This broad definition allows significant latitude for local governments to establish their own specific STR ordinances.

One statewide requirement is the Texas Hotel Occupancy Tax. STRs in Texas are subject to a 6% state hotel occupancy tax on the cost of the rental. This tax is in addition to any local occupancy taxes imposed by cities or counties. In McLennan County, STR operators must collect a total of 15% in occupancy taxes: 6% to the state, 7% to the City of Waco, and 2% to the county.

In 2017, the Texas Legislature passed HB 2551, which prohibits cities from banning STRs outright. The law states that municipalities may not "adopt or enforce a local law that expressly or effectively prohibits the use of a property as a short-term rental". However, cities can still regulate STRs for health and safety purposes, such as fire and building codes, health and sanitation, traffic control, and solid waste.

Cities may also restrict STRs from being used for illicit purposes, such as housing sex offenders, selling illegal drugs or alcohol without a permit, or operating as a sexually-oriented business. Additionally, municipalities can apply general zoning, noise, nuisance, and property maintenance regulations to STRs in the same manner as other similar properties.

It's important to note that HB 2551 does not override regulations put in place by property owners associations or other private entities. STR hosts in McLennan County should review any applicable HOA rules in addition to county and municipal ordinances.

Ultimately, while Texas state law provides a framework for STRs, the bulk of the regulatory power lies with local governments. McLennan County hosts must carefully review the specific rules in their city and ensure compliance with all licensing, permitting, tax collection, and operational requirements.

Does McLennan County Strictly Enforce STR Rules?

Based on discussions in real estate investing forums like BiggerPockets and Reddit, it appears that McLennan County does enforce its short-term rental regulations, but the level of enforcement may vary. The county requires STR operators in unincorporated areas to obtain a license from the Commissioners Court and adhere to specific requirements, such as submitting a site plan, proof of insurance, and designating a local contact person.

However, anecdotal evidence suggests that enforcement is more stringent within the city limits of Waco. The city requires STR operators to obtain both a license and a special permit in some cases, with the property needing to pass a Life Safety Inspection. In 2021, the Waco City Council voted to prohibit Type II and Type III STRs (where the owner does not reside on-site) in residential districts, demonstrating a willingness to impose restrictions.

That being said, McLennan County is generally considered more Airbnb-friendly compared to some other major Texas cities. For example, Austin has implemented strict regulations, including a ban on Type 2 STRs in residential areas and occupancy limits based on the number of bedrooms. In contrast, Waco still allows Type I STRs (owner-occupied) in residential zones with a permit.

Despite the rules, some hosts continue to operate STRs in McLennan County without proper licensing or in violation of zoning regulations. However, this comes with risks. The county can impose fines of $200-$1000 per day for operating without a license, and the city of Waco can levy daily fines for code violations which can quickly add up and even lead to property seizure.

In summary, while McLennan County and the city of Waco do enforce STR regulations, the area remains relatively Airbnb-friendly compared to some other parts of Texas. Hosts should carefully weigh the risks and ensure full compliance with all permitting and operational requirements to avoid potential penalties. Attempting to skirt the rules is not advisable, as the consequences can be severe.

How to Start a Short-Term Rental Business in McLennan County

Starting a short-term rental business in McLennan County, Texas, can be a lucrative venture. However, it's essential to follow the proper steps to ensure compliance with local regulations and set yourself up for success. Here's a comprehensive guide to getting started:

1. Research local regulations: Familiarize yourself with McLennan County's STR ordinances, zoning requirements, and any specific rules for the city or neighborhood where your property is located. In Waco, for example, you'll need to determine if your property requires a special permit based on its STR category and zoning district.
2. Obtain necessary licenses and permits: Apply for a short-term rental license from the McLennan County Commissioners Court. Submit the required documents, including a completed application form, proof of property ownership, site plan, floor plan, parking plan, proof of insurance, and local contact information. Pay the application fee and any applicable license fees.
3. Register for hotel occupancy taxes: Set up an account with Avenu to pay the required hotel occupancy taxes, which include a 7% tax to the City of Waco, 6% to the State of Texas, and 2% to McLennan County. Ensure you're prepared to collect and remit these taxes on a regular basis.
4. Prepare your property: Make any necessary repairs, upgrades, or renovations to ensure your property is safe, comfortable, and attractive to guests. Consider hiring an interior designer to help create a welcoming atmosphere. Invest in quality furnishings, linens, and amenities.
5. Create a compelling listing: Craft an engaging title and description for your STR listing, highlighting its unique features, amenities, and location. Use high-quality photos showcasing your property's best aspects. Be sure to prominently display your license number and occupancy limits on all listings.
6. Set competitive rates: Research the rates of similar STRs in your area to ensure your pricing is competitive. Consider using dynamic pricing tools to automatically adjust your rates based on demand.
7. Develop a marketing strategy: In addition to listing on popular platforms like Airbnb and VRBO, consider creating a website and social media presence for your STR. Utilize SEO techniques to improve your listing's visibility. You may also opt to list your property with the Waco Convention & Visitors Bureau for additional exposure.
8. Establish a cleaning and maintenance routine: Cleanliness is crucial for guest satisfaction and positive reviews. Hire a reliable cleaning service or create a thorough cleaning checklist to ensure your property is pristine between guests. Address any maintenance issues promptly to avoid negative guest experiences.
9. Provide excellent customer service: Respond promptly to guest inquiries, provide clear check-in instructions, and be available to address any concerns during their stay. Consider offering local recommendations or creating a guidebook to help guests make the most of their visit.
10. Monitor your performance: Regularly review your occupancy rates, revenue, and guest reviews to identify areas for improvement. Stay up-to-date with local regulations and adapt your strategy as needed to remain competitive in the McLennan County STR market.

By following these steps and prioritizing guest satisfaction, you'll be well on your way to running a successful short-term rental business in McLennan County.

Who to Contact in McLennan County about Short-Term Rental Regulations and Zoning?

For questions regarding short-term rental regulations and zoning in unincorporated areas of McLennan County, contact the McLennan County Commissioners Court:

1. Physical Address: McLennan County Courthouse, 501 Washington Ave., Waco, TX 76701
2. Mailing Address: P.O. Box 1728, Waco, TX 76703-1728
3. Phone: (254) 757-5049
4. Website: https://www.co.mclennan.tx.us/161/Commissioners-Court

For properties located within the city limits of Waco, contact the City of Waco Planning Department:

1. Physical Address: 401 Franklin Ave., Waco, TX 76701
2. Mailing Address: P.O. Box 2570, Waco, TX 76702-2570
3. Phone: (254) 750-5650
4. Email: planning@wacotx.gov
5. Website: https://www.waco-texas.com/Departments/Planning-Services

STR hosts in McLennan County may also find the following resources helpful:

Heart of Texas Vacation Rental Alliance (HOTVRA): A local organization dedicated to promoting and supporting the vacation rental industry in McLennan County and the surrounding area. They offer educational resources, networking opportunities, and advocacy for STR owners and managers. Website: https://hotvra.org/

Waco Vacation Rental Owners & Managers (Facebook Group): A private Facebook group for STR owners and managers in the Waco area to connect, share experiences, and discuss industry trends and best practices. URL: https://www.facebook.com/groups/WacoVacationRentals/

Waco Short-Term Rental Owners (Meetup Group): A local Meetup group for STR owners in Waco to network, learn from each other, and stay informed about local regulations and market conditions. URL: https://www.meetup.com/Waco-Short-Term-Rental-Owners/

BiggerPockets Waco Real Estate Investing Forum: While not exclusively focused on short-term rentals, this online forum is a valuable resource for real estate investors in the Waco area, including those interested in STRs. URL: https://www.biggerpockets.com/forums/521-waco-real-estate-investing

By connecting with these local resources and staying in touch with the appropriate city and county departments, STR hosts in McLennan County can ensure they remain compliant with regulations and have the support they need to succeed in the short-term rental market.

What Do Airbnb Hosts in McLennan County on Reddit and Bigger Pockets Think about Local Regulations?

To gauge the sentiment of Airbnb hosts in McLennan County regarding local regulations, we searched relevant forums and online communities. Here are a few notable examples:

BiggerPockets Forum - "STR UPDATE for Out of Town Investors Interested in Waco": In this thread, a local host provides an update on the short-term rental market in Waco, Texas. They mention that there are specific regulations based on the type and location of the STR, including onsite parking requirements and a 4% hotel tax. The post aims to educate out-of-town investors looking to secure their first STR in Waco.

BiggerPockets Forum - "Waco Tx for Long/Short Term Rental?": A prospective investor inquires about the short and long-term rental market in Waco, Texas. They are looking to purchase their first property as an out-of-state investor. While no specific regulations are discussed, the post indicates an interest in the Waco STR market from non-local investors.

While these examples provide some insight into the experiences and concerns of STR hosts in the Waco area, there appears to be limited discussion specifically focused on local regulations in McLennan County. Hosts seem more concerned with practical issues like utility costs and educating out-of-town investors about the local market.

It's important to note that the information available on public forums may not represent the full spectrum of host opinions in McLennan County. Many hosts may choose to discuss regulatory issues in private groups or directly with local authorities. Additionally, the rapidly evolving nature of STR regulations means that host sentiment can change quickly in response to new developments.

To gain a more comprehensive understanding of host views on local regulations, it would be beneficial to engage directly with the McLennan County STR community through targeted surveys, interviews, or focus groups. This approach could provide valuable insights into the specific challenges, concerns, and opinions of hosts operating in the county.

Disclaimer: While we here at BNBCalc strive to keep all of our regulation guides updated and accurate with all the latest local laws, we still do not suggest using them as your sole or primary source for local regulations. We also do not recommend you rely on the third-party sources we link to or reference, and we are not responsible for any of the information on these third-party sites. These guides are for entertainment purposes only and only provide basic information and should not be considered as legal advice.

We highly recommend directly contacting the responsible parties for each and hearing what their officials have to say. Ultimately, it's your responsibility as an investor to ensure you fully comply with the local laws, and it's best to speak with professionals before making an investment decision.