What you may not know ….

quoteThis week I received a call from a couple who were interested in listing their property with my company, Vacation Rentals of the Desert. Through our conversation I learned that they had purchased the property about a year ago. They found a “fixer” with “good bones” in an excellent residential area in desperate need of updating and TLC. Their initial goal … move to the desert, purchase an affordable property in a great neighborhood, fix it up and occasionally accept short term rentals to help offset their carry costs. Their retirement plans were to live at their beach home in the winter and their desert home in the summer, taking advantage of the opposing seasons and seasonal desirability of their vacation homes. Now, one year later, after extensive renovations, they were ready to advertise their desert vacation home.  Perfect plan until they attended their neighborhood HOA (Home Owner’s Association) meeting and found that their community was trying to ban short term vacation rentals! The meeting was so heated and contentious that the couple is now having second thoughts about renting and are uncertain whether they will be able to keep the property if short term rentals were prohibited.

Over the past few years I have heard various versions of this same story.

Throughout the US, many neighborhoods severely suffered from the 2008 housing bubble. In recent years, particularly in resort areas, many savvy buyers have purchased foreclosed, abandoned and run down properties as investments. Making these very same homes suitable for vacation rentals by investing in improvements and updates on these properties has, in the long run, contributed to lifting these neighborhoods out of the housing crisis and substantially improved the unsightly appearance of neglected homes and increased property values.  Despite these benefits, more and more HOAs and permanent residents are speaking out on vacation rental homes and have labeled many as “party houses.” I could go on for days and days with this subject … but that is not the intent of this post. Rather I encourage all readers who are contemplating vacation rental ownership to first do their homework … especially if you have not yet purchased the vacation home.

I receive at least a dozen calls a year from potential buyers asking for my advice on where best to invest their money on a vacation property, how the vacation rental industry works in our specific area, etc. This is probably the number one, smartest thing a potential buyer can do. I have seen many folks jump into purchasing a property and listing it on a “by owner “ site only to find that they run into rules, regulations and ordinances that they were not aware of … until they found themselves in a nest of alligators!

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The following are a few tips for potential vacation rental owners. This advice holds true for owners who will be managing their own property on a “by owner” site or listing their property with a professional vacation rental management company.

• Search vacation management sites and “by owner” vacation property listings in the area you are considering. If the area is heavily populated with vacation rentals you should be able to gather quite a bit of information. Read the listing descriptions, rules and regulation. You may find that these listings will mention T.O.T. (transient occupancy tax) or that short term rentals are prohibited in the area. Read carefully however … if the listing states “No Short Term Rentals” this does not necessarily mean that they are prohibited. This may simply mean that the owner will only accommodate long term tenants. This search will also be helpful in finding your potential rental rate and by viewing the calendars you may get an insight on rental demand. Note: by owner sites may not have accurate calendars since dates must be manually entered where professional vacation rental sites will have calendars that are linked to reservations. Once the properties are booked the dates automatically appear on the calendar.
• Look up the city’s website and search vacation rentals. Many cities will have a vacation rental ordinance and the rules and regulations surrounding the operation of vacation rentals. Some cities do not allow any rentals of less than one month. Many cities will require a vacation rental license for your property and some even will require that the owner or manager must obtain a business license. Your city may require T.O.T. be submitted on rental fees for short stays under a specified length of time and the city many additionally require tax on not just rental fees but also cleaning, pet fees, etc.
• Talk to a vacation rental professional in your area. Say for instance you have narrowed down your search to a particular city, neighborhood or gated community. Do an internet search for a vacation rental management company that specializes in that particular area. Call and speak to the owner or manager of the company and then ask for their insights. Vacation rental professionals are by nature and necessity, chatty people. The potential for adding another property to their program will be incentive to share their knowledge. Even though your realtor may know the basic regulations and restrictions of any given area, such as whether a particular area will allow short term rentals, a vacation rental professional will most likely have more insightful information on the politics and challenges that their owners and managed properties are facing … efforts to restrict certain rentals and a “behind the scenes” sense of potential problems that buyers may want to be aware of before throwing their nest egg into a nest of alligators.

 

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