Half of LA Short-Term Rentals Breaking the Law?

Question

https://laist.com/news/housing...

According to this article, a recent study showed nearly half of the LA short-term rentals were in violation of the law. LA collected $40,000 in fines last year, but could have collected up to $300 million if they had been more diligent in tracking down offenders. They could hire ten full-time investigators at $100,000 each and collect 100x what they spend. I honestly don't understand how government manages to lose so much money.

I've regularly suggested that at least 1/3 of all short-term rentals are in violation of state law, zoning, HOA rules, Landlord lease agreement, not paying taxes, or something. It's still the wild west but I suspect we'll see some serious measures to clean it up in the next 3-5 years.

Galen Ikonomov · Answer

I would say for the government not to touch anything and let the free market does what it does the best. I don't think there would be a need for the government to start cracking down on fees or business closures. With the FEDS rate increases, the everyday consumer will need to slow down spending and a lot of STR owners that don't have reserves or unique property at a unique location for income, will need to find different ways to make money with the property.

John Underwood · Answer

If it is illegal as mentioned above then operating an STR would be breaking the law and would be subject to penalties.

Ryan Moyer · Answer

I think this is probably happening everywhere.  Here in Salt Lake City STRs are essentially illegal, but tons of people operate them anyway because the city doesn't really enforce it.

I imagine one day the city will decide to start enforcing it, and then everyone will act shocked and caught off guard that they can no longer operate their illegal STRs.

Michael Baum · Answer

Hehe, that ain't gonna happen @Galen Ikonomov. CA has some of the highest taxes in the country and they are always looking to get more. They will go after those errant STRs once they realize how many are breaking the law.

Frankly that is what they are doing. Breaking the law. It is their own fault if they get huge fines. I don't have a lot of sympathy for those that tried to skirt the law and get away with it. You pays yer money and takes yer chances.

Nathan Gesner · Answer

I disagree. If the laws exist, they should be enforced. We have law-abiding citizens competing against law-breakers and that is not "free market" practice.

Michael Baum · Answer

Exactly what @John Underwood said. Many municipalities regulate STRs. You might need to get a permit, be in a specific area, or be a certain distance away from another STR.

LA has pretty much banned them completely. There is a law on the books prohibiting STRs. It is not a criminal offense but a civil infraction. The city can start leveling fines until the STR is shut down.

Pretty simple really.

Roi Ford · Answer

@Nathan Gesner

Vegas is the same way. So, as an Investor and Agent I always  caution other investors to tread lightly concerning Airbnb. They have started cracking down here, and the first investor to feel the pain was fined $60k

So, if it can happen, it will.

You can absolutely invest in short term rentals here, but will need to follow the rules.

Jonathan Taylor · Answer

@Nathan Gesner your eager optimism of enforcement is admired but misplaced. Los Angeles, as with other major metropolis', are inefficient. I own in rent control in a prime area for STR. I see listings posted all the time but RSO nor HCIDLA are in that line of business of enforcing this even though the STR operators are clear as day to see and VERY easy to find.

Just look up how many lawsuits are filed and paid out against LA due to sidewalk falls/injuries. Millions are paid out annually yet you call the city to fix a sidewalk and in turn avoid a costly payout for an injury, probably a 5-10k fix, and you cant get anyone out for years. This happened to a co worker of mine. Called called called. no fix. someone injured and sued and won six figures. Its idiotic.

Since this is the reality, get those STRs up and make some income! Small risk knowing they cant figure out how the airbnb search bar works.

Cody L. · Answer

Not to be pedantic, but someone doing STR in violation of a lease or HOA is not breaking the law.  And while you're not allowed to not pay taxes, that's not an STR specific thing.  Plenty of LTR and 'side hustle' people and normal workers fudge on taxes.  I know plenty of LTR owners who collect rent every now and then in cash and it never hits the books.

Erik Stenbakken · Answer

I have a real beef on this topic (but not in LA per se -- I have no pony in that race)

Here's a few reasons I think STR operators SHOULD follow laws.

1. Allowing those who do not comply creates an unfair advantage for those who break the law. Two identical properties and one collects 12% tax and the other does not? You know which one will cost less to book. Rewards the law-breaker and cheats the municipality.

2. How "wild west" do we really want this to be? Let the market sort it out? Ok. Well, there are more guns than people in my town (Greeley, Colo). Just where do we draw the line on which laws we have to keep and which ones do we just let get sorted out on the street -- old west style?

3. STRs operating illegally in neighborhoods breed hostility (see #1 & #2). I have a fellow on my street who began operating his house like a hotel. Random people coming and going day and night, filling the street with random (often unregistered) vehicles. Oh, and guests showing up at the wrong house pounding on the door at midnight "Hey. Let me in, I'm staying here tonight" See #2 above.

Nobody in our area likes the guy who's operating illegally. It's not just about fair competition. It's about neighborhood culture. And when we as STR owners feel we're pulling a fast one and going to operate however WE want, regardless of law. Well, that opens Pandora's box in a lot of unwanted ways. Totally agree with @Nathan Gesner on this. Let's not be that bad apple.

Half of LA Short-Term Rentals Breaking the Law?

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