We own a few properties around the world. We used to rent them out on short term rental sites such as Airbnb, Booking.com, and VRBO in an attempt to earn passive income. Unfortunately, we have come to the conclusion that owning vacation rentals may no longer be a viable investment option.
Excessive government regulation has cut into our profits and made short term letting more of a hassle than it’s worth. As such, we have sold some real estate and turned most of our vacation properties into long term rentals. Moreover, we have no plans to buy short term rental units in the future.
Short term rentals may still be a savvy investment for some readers, in some locations. However, be sure to do your due diligence if you are thinking of becoming an Airbnb entrepreneur. Here are some of the ways federal, state, and municipal governments are cracking down on short term rentals.
Short term rentals have become illegal.
Some cities have banned Airbnb completely. For example, in 2012 Panama made it illegal to rent out an apartment for less than 45 days in the capital city. If you attempt to operate a short-term rental business anywhere within Panama City limits, you will face heavy fines.
Owners can only operate a short term rental in specific areas.
In some places, zoning restrictions make it impossible for you to start a short term rental venture. Airbnb units were traditionally located in residential areas, but now some governments are forcing real estate entrepreneurs to directly compete with hotels in commercial districts.
For example, In Halifax, Nova Scotia, short-term rentals are only allowed in commercial or mixed-use zones (where most hotels are located).
Portugal has taken it a step further, and now only issues licenses for holiday lets in rural areas.
Even cities that permit Airbnbs in residential areas restrict them significantly. In Dallas, Texas, short term rentals are only allowed in multi-family residential areas with 20 or more units. Even then, only 3% of the units can be used as vacation rentals.
Owners can only rent out their property for a limited number of days each year.
If you go to all the trouble of buying an investment property, decorating it, and listing it on short term rental websites — you hope to fill it with guests as often as possible.
Unfortunately, many governments only allow you to accept the occasional guest. For example, in 2018 Amsterdam limited short-term rentals to 30 days a year. If you only receive income 30 days a year, it is unlikely that you will cover your expenses, nevertheless make a profit.
Owners are only allowed a certain number of guests.
Perhaps you bought a rental property in a party town, hoping to rent it out to groups of friends? Maybe you purchased pull-out couches, so multiple family members could share a room? Government restrictions may nullify the whole purpose of your investment. For example, according to a new law in New York City, no more than two guests can stay in a space.
Owners must require a minimum length of stay.
Certain municipalities thwart your efforts by mandating a minimum stay for guests. Sometimes, you can make more money in one night than the rest of the year combined — think of events such as the Superbowl, the opening ceremony at the Olympics, or a royal wedding. Additionally, some guests have limited vacation days or can only afford a short getaway. Regulations such as Anaheim’s three-night minimum stay requirement may deter guests and cost you a booking.
Owners are required to get permission from their neighbors and/or condo board.
In lots of jurisdictions, you are not allowed to rent out your property without pacifying your neighbors. In Savannah, Georgia, you are merely required to notify your neighbors and your condo board that you intend to short term let your property. However, in nearby Chattanooga, Tennessee, the city can prevent you from operating a holiday rental if four or more property owners or residents within 300 feet of the property submit written objections.
Owners must ensure compliance with a variety of nuisance laws.
In many areas, short term rental owners need to jump through hoops that regular homeowners wouldn’t even think about. For example, The Arlington City Council has implemented noise restrictions (no amplified sound between 10:00 pm and 9:00 am) that only apply to vacation rental properties. Additionally, Airbnb guests have a curfew — they are prohibited from congregating outside between 10:00 pm and 9:00 am.
Owners must register their property as a short term rental.
Almost every location in the world requires vacation rental owners to register their property with a government agency and/or obtain an operating license. Said requirement is obviously a cash grab: property owners are required to pay hundreds of dollars in application and renewal fees. Some people may even consider it a fine/punishment for choosing to open their home to travelers.
The fees can really add up. For example, to operate an Airbnb unit in Milwaukee, Wisconsin you would need to pay The Wisconsin Department of Agriculture, Trade, and Consumer Protection (DATCP) a 1-time pre-inspection fee of $300 and $110 annually for your Tourist Rooming House license. In addition, you would need to pay the City of Milwaukee $166 annually for your Dwelling Facilities License.
Money aside, registering your short term rental property can be a complicated and time-consuming process. Agencies often require owners to submit business plans, provide floor plans, submit to fingerprinting, and undergo property inspections before they will issue a license.
Owners are required to live at the property.
The harshest rule we know of essentially stops you from running a short term rental business.
International investors used to buy secondary homes abroad, solely for rental purposes. With a reliable property manager, your rental unit could be a hands-off investment.
Now, in many cities around the world, you are only allowed to short term let your primary residence. For example, in Baltimore, Maryland, the property must be your permanent residence — which the city defines as “one in which the owner resides for at least 180 days annually.” In San Francisco, you must reside in the unit at least 275 days a year.
Even if the house is your primary residence, some governments prevent you from renting out the entire property. You are only permitted to rent out a spare bedroom. In places such as Santa Monica and Seaside, California, “The property owner must occupy the dwelling unit as their principal residence and must be present during the occupancy of the hosted Short-Term Rental.” We are sure that living at the property along with your guests is a far cry from the hands-off investment you envisioned.
Clearly, the foregoing laws, licensing requirements, and restrictions are intended to deter potential Airbnb hosts. These existing rules are not going away, and the trend seems to be for cities to limit short term rentals even further. Unless you are willing to comply with ever-changing laws restricting what you can do with your own property, we recommend pursuing alternative investments.
Fortunately, we discuss a variety of investments on our site. Please refer to articles such as Blue-Chip Gems If You Want Dividends, Crypto Mining: How to Start and Succeed, and Harvesting Wealth: Invest In Agriculture.