The San Diego city council recently voted to limit short term vacation rentals to primary residences only (http://www.sandiegouniontribune.com/business/touri...). This market is extremely saturated with STVR investment properties and this vote will make many of them illegal.
Do you think this will this impact the long term rental market or home prices?
Would love to hear your thoughts!
We will be affected by the STR regulations. So I have put some thought into this trying to determine what our best path is.
I suspect that most areas of San Diego City do not have enough STRs to significantly effect the RE price in those areas. Similarly, I do not expect in most areas of San Diego the STR regulations will have much impact on the rents.
However, certain beach communities, such as Mission Beach where our STR is located, have enough STRs that there may be a resulting price decline but I would not view the price decline as a price reduction because the profit of the RE is substantially different when it cannot be used as an STR.
I will use our STR as an example. It is a small (real small) duplex in Mission Beach, ~1 block from the ocean. As an STR we believe we will average ~$15k/month rent for 2018. The STR has higher expenses than LTR, so this is no where near as much cash flow as getting $15K/month for an LTR but it is significant positive cash flow.
I suspect the rent as a LTR will be between $5.5K and $6K per month but we have done a rent survey yet in part because I am anticipating the LTR rent may fall due to the increased supply of LTR units. The expenses for STR are much more than LTR but they are far less than $9K/month. So the RE will get less rent due to the transition from STR to LTR. In addition, it is likely that the LTR rents in Mission Beach will fall due to increased supply.
The end result is the Mission Beach RE is not as profitable once it cannot be used as a STR and this should be reflected in the price of the RE. So the price may drop but it will be a result of the RE not being able to generate the same revenue as was attainable as an STR.
I suspect we will monitor the price of beach property and if a beach front property in Leucadia area drops in price enough we may purchase it. We would STR it until regulations prohibit it. Then we would LTR it with the expectation of years of significant negative cash flow as an LTR. I suspect we will be lucky if the LTR rent to cost ratio is 0.5%. So it would be a real long time before I would expect to be breaking even but I expect it to happen as beach front is precious, limited, and in high demand. Plus we love Leucadia and would be thinking of it as a potential retirement home.
I know some people iwth STRs and non seem worried. I had an agent that specializes in property in the MB, PB, La Jolla area look at some pricing for me to see if anything is even getting a little 'soft'. Nothing. I thought I might be able to buy something for myself to have (or lease to friends/visitors). But everything is still priced at a like 2 CAP using rosey STR proformas.
Maybe nothing has happened since the law is still a year out and people think something might happen. So in a year, when enforcement takes hold, who knows if the market will shift with many running for the exit at the same time.
tl;dr: Thought I might find some people trying to exit before everyone else, but haven't seen it yet.