Pat Hune, Broker, 1st Southwest Realty, April 2019
Originally people who rented out unused rooms in their homes on a short term basis was referred to as a Bed and Breakfast. An owner fixed up an unused bedroom, rented it for a few nights, provided breakfast and information about local attractions to the renters. The owner made some extra money. The travelers had a nicer experience and typically paid less than the cost of a hotel room. The internet short term rental websites like Air BNB and Home Away dramatically changed this concept. Short term rentals became a big revenue generator.
In the five-year period from 2010 to 2015, vacation rentals used by travelers in the United States increased from 11% to 33% of all travel lodging. In 2018 vacation rentals will be used by at least 50% of all travelers in the United States. Not only has usage of vacation rentals increased tremendously, there has also been a tremendous increase in income to vacation rental homeowners and to internet vacation rental companies. Investors quickly went after the lucrative short term rental business. The math is simple. Renting a three bedroom, two or three bath home for $1500 a month for a year versus $100 per night per bedroom is a far better return on investment. Even if the three bedrooms are only rented for twelve nights out of the month the gross income is $3,600. Investors started buying single family homes and turning them into hotels.
In Tempe Arizona, one investor bought a house and converted it to a 10 room hotel. The resulting traffic, parking constraints, noise, trash and other neighborhood disturbances and nuisances have angered the neighboring residents. There is no HOA in this neighborhood, so as of today, there is nothing these residents can do other than complain to the police. HOA’s have reacted by changing the bylaws to limit rentals to no less than 30 days.
In 2015, the Idaho Supreme Court ruled that an HOA could enforce CC&Rs prohibiting vacation rentals. As a result of this Idaho Supreme Court decision, the Idaho legislature in their next legislative session passed a law against CC&Rs prohibiting vacation rentals. This angered many homeowners. In April 2017 a new law was implemented to govern how short-term rentals are are regulated and taxed, and implemented health, safety and welfare requirements. The Idaho legislature hopes this will improve relations with the neighbors. An investor might think the solution is to buy a house were there is no HOA.
According to the National Conference of State Legislatures, 24 states considered short-term rental legislation in 2016; six of those passed, and more have been proposed this year. Approaches have varied widely, including a ban on advertising certain types of apartments in New York City for short-term rental. The movement to regulate short term rentals has already started in New Orleans, San Francisco, Phoenix and Detroit and other cities like Paris, France. In January 2018 Airbnb deleted half of its listings in San Francisco after a new law that requires hosts to register their properties with the city kicked in. County Supervisor, Aaron Peskin told the San Francisco Chronicle “We just wanted to have commonsense regulations whereby San Francisco’s acute housing crisis isn’t exacerbated. The board is unanimous in its desire to have real home-sharing that does not take units off the market that would otherwise go to people who live and work here.” Clearly this was a move to stop investors from turning residential properties that would be owner/occupied into hotels.
The main rule in approaching the short-term rental market these days: Have a strong backup plan. The hotel industry has a strong lobbying group. They do not want short term rentals decreasing their revenue. One owner in Sedona lost their vacation rental home because the HOA changed short term rentals to a minimum 30 days. The owner counted on the short term money to cover their mortgage. One never knows what the short term rental limitations will be implemented in the future. As a homeowner should you be concerned If your home is next to a short term rental? Will a short term rental decrease the value of neighboring homes? Do home owners who live next to a short term rental have to disclose this to a prospective buyer? If there are a lot of police calls with this impact the resale value of a home? Crime rates are typically something a homebuyer considers. If you were buying home would you want to know there was a short term rental nearby? If you answered yes to any of these questions what should you do? If you are having issues try to work them out with the owner even if you don’t plan on moving in the near future. The sooner you start working to resolve issues the better. I predict the Arizona seller disclosure form will add this question in the near future. This will probably be as a result of a law suit from disgruntled neighbors.