The following information is provided by the Center for REALTOR® Development (CRD).
Since around 2008, with the launch of on-demand rental reservation websites such as Airbnb, the short-term rental market has been growing at a very healthy (and, to some, alarming) pace. While short-term rentals benefit their local markets by promoting tourism and revenues, and making ownership of investment properties (and vacations!) more affordable for many, short-term rentals also come with some undeniable drawbacks.
In practical terms, the short-term rental issue pits long-time and year-round residents against investors and their renters. Investors rely on an income stream from rentals. But an ever-changing flow of vacation and transient renters can cause headaches for the community in the form of increases in noise and traffic, reduced housing stock for permanent residents, concerns about safety, and unfair competition with longstanding and legitimately licensed establishments in the area.
At state, county, and municipal levels, communities have taken vastly different approaches in their attempt to regulate the issue. Some have placed restrictions on the length of time for rentals, requiring that they be no shorter than 30 or 60 days, for example. Others have prohibited or outlawed short-term rentals altogether. Such measures have unintended consequences though, and these include diminishing the value (in terms of cash flow) of investment properties, reducing the pool of buyers in high-demand areas, and possible infringement of property rights.
Other communities have taken the opposite approach and have allowed for short-term rentals, but with restrictions and requirements that help to ensure a quality experience for both renters and local residents. For example, some of these solutions involve one or more of the following elements:
- Discrete tourist zones where rentals are allowed
- Grandfathering of existing rental policies to allow, but not for new rentals
- Transient rental occupancy license requirements
- Permits and posting of owner’s contact information for complaints
- Stiff fines for landlords with nuisance tenants
In some instances, a tax stream for the state and/or municipality has been created as well. In Colorado, for example, some cities require that the short-term rental be in one’s primary residence and a certain percentage of the rental income be taxed by both the municipality and the state.
The variation in state and local laws, ordinances, and regulations can make this a very complicated issue. As real estate professionals, your best bet is to stay on top of the issue at both the micro and macro levels. A great first step would be to understand what is and isn’t allowed in your particular area and in the properties or developments with which you typically work. This would include a check of:
- State laws and regulations
- Municipal ordinances, including zoning and occupancy
- HOA covenants, conditions and restrictions (by property)
- Individual rental agreements (by property)
Your local government’s website or offices would be a great place to start your research, and then go from there, based on their advice. Airbnb offers a handy resource of rules and look-ups for its major city markets. Travel industry market intelligence platform Skift also has put together some really helpful tables that give different cities scores in different short-term rental criteria (i.e., regulation and enforcement) and an overall letter grade.
At a macro level, the best thing you can do is to get yourself educated about this market with education from NAR and your local and state associations, obtain the Resort and Second-Home Property Specialist (RSPS) certification, periodically review NAR’s Field Guide to Short-Term Rental Restrictions for updates and developments at the national level, and stay up-to-date through relationships with peers and mentors.
For more education about the second-home and resort market, check out this month’s featured online course at the Center for REALTOR® Development, Home Sweet (Second) Home: Vacation, Investment, Luxury Properties, which is the educational requirement for NAR’s Resort and Second-Home Property Specialist (RSPS) certification.
For more information, please visit onlinelearning.realtor.
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Source: RIS Media Technology