Short Term Rentals - Risks of Regulation

Short Term Rentals - Risks of Regulation

Investor · Verona, WI · Member since 2008 · 134 posts · 79 votes

I currently own and operate a short term rental in northern Wisconsin (as well as manage several traditional rentals). I'm curious what others are seeing across the country in terms of city and state regulation of short term rentals? 

My short term rental has far out performed any of my traditional rentals by a long shot (but it's more work to manage). I've considered buying more, but I'm very hesitant because local governments seem very anti vacation rental property. For awhile some counties in Wisconsin had actually outlawed short term rentals on residential properties. In 2017 Wisconsin’s Right to Rent law prevented municipalities from banning short term rentals entirely. However, municipalities are allowed to have some significant restrictions. One of these possible restrictions is requiring a minimum of a 7-night stay, in other words you couldn’t rent your home out for the weekend. Another possible restriction is renting for a maximum of 180 consecutive nights in a year. For example, if you started your short-term rentals in April, you’d need to stop in September. Many of the municipalities that I have checked with (Madison included) follow these two restrictions. These restrictions can turn a great property into a flop, because if you wipe out half the year and eliminate 2-6 night rentals you lose a large portion of your rentals.

Now I see the news in Colorado that the Aspen City Council ordered a stop to new development and short term rental licensing. I've seriously considered buying a rental in places like Aspen, Gatlinburg, Florida, etc. However, it's really scary that the local government could just change their rules and turn your property from a great investment to a terrible one. Even scarier that it's happening in areas where tourism is what drives their economy. 

What are your thoughts, is heavier restriction on vacation rentals a growing trend? What are you seeing in your area? Am I being too cautious? 

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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y

Yeah, it completely depends on the state and local area. Arizona does not allow any local municipalities to ban STRs, they can only regulate them. Other states have similar views. So STRs are still a fantastic investment, but just do a lot of research and look into your crystal ball.

Also, some areas that might eventually limit STRs, to some extent, are generally saying that existing STRs will be grandfathered in.....so if you find an 'iffy' area, just get in now....

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  • Lender · Asheville, NC · Member since 2020 · 463 posts · 507 votes
    4y
    Originally posted by @Keith Schulz:

    @Bruce Woodruff Yes, Wisconsin is the same now. They do not allow local municipalities to ban, but they can regulate, and the regulations are fairly restrictive. 

    @Luke Carl I'm not so sure being surrounded by vacation rentals everywhere is the answer. You are surrounded by your competition which drives prices down. For example I stayed in a very nice place in Orlando for $200/night. In an area with fewer rentals it could have easily been 400/night. Additional Orlando is an absolute mess when it comes to this. Waiting in line at a security gate for an hour and a half on a Friday evening to get into a neighborhood is no way to start a vacation. Going to the Walmart to find they are out of toilet paper and garbage backs sucks, and going out to eat with 2.5 hour waits with hungry kids is not pleasant. Gatlinburg on the other hand has handled the heavy vacation rental market better. ...but I'm still not sold on the saturated markets. I'm open to hearing more though.

    I have some of the same tension at the moment. Having an STR in a larger town can be great for revenue, but risky for surprise regulation. Smaller, border towns have seemed safer to me at times, but have then rolled out surprise regulations as well. For example, here in western NC, Highlands and Cashiers (small towns) just outlawed STR, while I was looking at buying an STR next door in Sapphire.

    I too have reservations about buying in vacation-only markets, because when I sell the home I'll likely be limited to selling to other investors, rather than both investors and owner occupants. And that could be a negative for value appreciation as well. Meaning, if I have an STR that can, due to location, also serve as a primary residence, my equity opportunity may be greater than having such a home in an area that is saturated with vacation homes. That said, we're seeing quite a few people move into some of our smaller tourist markets (i.e., as owner occupants), which makes some of them more appealing to me.

    @Michael Blum On the plan B matter, I think furnished, month-to-month is a great plan B, and far superior to LTR, especially if the home is already furnished. Keeping it furnished, preserves the condition way better than LTR where people are moving their stuff in and out. I do a 90-day minimum and monthly after that, and I gross double what I would with LTR (while having barely any R&M costs at turns). 

  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Originally posted by @Mitch Davidson:

    I would also be wary of buying a single use property. Ideally we all want a multi-use. Something that can be used as a STR, LTR, or primary residence. I would think most towns would have a quaint little area that used to be happening and is getting ready to go through the 'gentrification' process (?) Perfect for all three uses I would think, but of course very dependent on the specific town....

  • Fox Lake, IL · Member since 2021 · 13 posts · 4 votes
    4y

    what part of northern Wisconsin are you in? I am currently looking for property there and haven't heard anything about it being heavily restricted. I currently have a str in the upper peninsula and there are zero restrictions in my area there. I am looking to get three more next year in Wisconsin  

  • Investor · Verona, WI · Member since 2008 · 134 posts · 79 votes
    4y
    Originally posted by @Derric Johnson:

    what part of northern Wisconsin are you in? I am currently looking for property there and haven't heard anything about it being heavily restricted. I currently have a str in the upper peninsula and there are zero restrictions in my area there. I am looking to get three more next year in Wisconsin  

    I live in Verona (Madison area). It's very restrictive in much of Dane County. My STR is in the Minocqua area, but thankfully it's zoned recreational, so I'm not restricted as much as the rest of Oneida and Vilas Counties. You would think those two counties up north would want more STR because tourism is their primary thing. Many of the more rural areas haven't adopted any regulations, but be careful, because state laws do allow them to restrict to a minimum 7 day rental and maximum of 180 consecutive days out of a year (if they decide they want to create a regulation).

  • Fox Lake, IL · Member since 2021 · 13 posts · 4 votes
    4y

    @Keith Schulz

    I am looking in Vilas county or iron county. I like Vilas county I thought they were pretty easy with them but I knew you have to go through the health department I’m looking at a place in Boulder junction. I know of a good amount of them up there. I was going to really look into it a lot more hence why I’m here researching.

  • Investor · Verona, WI · Member since 2008 · 134 posts · 79 votes
    4y
    Originally posted by @Derric Johnson:

    @Keith Schulz

    I am looking in Vilas county or iron county. I like Vilas county I thought they were pretty easy with them but I knew you have to go through the health department I’m looking at a place in Boulder junction. I know of a good amount of them up there. I was going to really look into it a lot more hence why I’m here researching.

    I think Iron county is more flexible, but Vilas restricts to minimum of 7 day rentals, which is fine in the summer but tough in the winter. I get a lot of 3-4 day weekends in the winter for ice fishing and snowmobiling. This is from the Vilas County website: "All rentals for a term of less than thirty (30) days require paying room tax to your local municipality and obtaining licensure through the Vilas County Public Health Department. Rentals in the Single Family Residential (R-1) zoning district may not be for a term of less than seven (7) days. Please be aware that in some cases rental licenses may be issued allowing for more beds than the septic system serving the property is designed to accommodate."

  • Accountant · Madison WI · Member since 2018 · 17 posts · 11 votes
    4y

    @Keith Schulz Hey Keith, we manage several short term rentals around Madison, Wisconsin dells, Baraboo, Tomah, Rome.

    None of the cities, towns, municipalities have the resources to actually audit the 7 day rule or the monthly consecutive rule. For our personal short term rental investments we do not really consider this an issue in anyway. We do let our investors know that this is out there but we have also been operating in this model for 3 years without any issues.

    The laws were actually created by the areas that are included in the premier resort area tax program (Dells, sister bay, eagle river, Rhinelander) to try and deter investors like us from creating destinations away from these high tourist areas.

  • Investor · Verona, WI · Member since 2008 · 134 posts · 79 votes
    4y
    Originally posted by @Jacob Walter:

    @Keith Schulz Hey Keith, we manage several short term rentals around Madison, Wisconsin dells, Baraboo, Tomah, Rome.

    None of the cities, towns, municipalities have the resources to actually audit the 7 day rule or the monthly consecutive rule. For our personal short term rental investments we do not really consider this an issue in anyway. We do let our investors know that this is out there but we have also been operating in this model for 3 years without any issues.

    The laws were actually created by the areas that are included in the premier resort area tax program (Dells, sister bay, eagle river, Rhinelander) to try and deter investors like us from creating destinations away from these high tourist areas.

     Spending half million plus for an investment to simply hope the municipality doesn't enforce the rules they put in place, doesn't make any sense and should not be the way anybody does business. I have seen several investors fined by municipalities for not following guidelines.

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