Half of LA Short-Term Rentals Breaking the Law?
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
The DIY Landlord Book4.7245 Reviews
Half of LA Short-Term Rentals Breaking the Law?
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votesQuote from @Galen Ikonomov:
I agree with you @Michael Baum.
Would you give me an example though how would an STR owner will break the law? The one that comes to my mind is if the city/county imposed STR License fees and hotel taxes and the owner does not pay these. What else?
If it is illegal as mentioned above then operating an STR would be breaking the law and would be subject to penalties.
18 Replies
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
I think you are right @Nathan Gesner. Frankly I am surprised that they haven't been going crazy enforcing the laws already.
I know people will say that they don't enforce the criminal code in the greater LA area, but that costs money.
Enforcing STR laws could be a pretty big revenue stream and I expect they will catch on pretty quick.
- Member since 2021 · 256 posts · 213 votes3y
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.
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
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.
- Member since 2021 · 256 posts · 213 votes3y
I agree with you @Michael Baum.
Would you give me an example though how would an STR owner will break the law? The one that comes to my mind is if the city/county imposed STR License fees and hotel taxes and the owner does not pay these. What else?
- 3yRyan MoyerBusiness MemberProperty Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 996 posts · 1k+ votes
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.
Cosmic Vacations4.9177 Reviews - 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Galen Ikonomov:
I agree with you @Michael Baum.
Would you give me an example though how would an STR owner will break the law? The one that comes to my mind is if the city/county imposed STR License fees and hotel taxes and the owner does not pay these. What else?
If it is illegal as mentioned above then operating an STR would be breaking the law and would be subject to penalties.
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
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.
I am not familiar with Los Angeles STR laws or history, but I am familiar with San Diego STR history and see some similarities.
In San Diego STRs have been allowed for many years. The city gladly collected the occupancy tax from these STRs. The city decided to create new STR quotas. In the area that STRs have long been a part of the community they placed the quota at 30% and for the rest of the city they placed the quota at 1%. The city did provide an advantage for existing STRs. You get additional points for years of operation where taxes were paid for at least 90 days of rental and that had no significant violations. There were a few different levels of points for duration paying occupancy tax, but the most points were for hosts that could prove at least 5 years of >90 days of rentals. The city, even though they have been paid the taxes and should already know which STRs have existed for what duration, placed the burden of proof on the operator to show each occupancy going back 5 years. It is my belief that more points should have been allowed for STRs that have been in operation for more than 5 years, but I did not set the lottery rules.
We have two STRs in the high STR quota area. Both have been STRs since 1999 (some of those years they were STRs only in the summer months - mostly the first couple of years and again in the Great Recession). The family uses the STR units on occasion and let family and friends stay there. They were purchased to be available for our use as well as to be rented on a short-term basis.
I was able to find the tenant data going back over 7 years, so we get maximum points allowed in the lottery. What if I had not kept the tenant data going back at least 5 years? However, this maximum points into the lottery does not guarantee that our units will win the STR lottery even though these STRs have been following the law and paying the occupancy taxes for going on 23 years. If it loses the lottery, they will be required to no longer operate as an STR. If our units are not selected in the lottery, we would transition to 30+ day furnished rental (Mid term Rentals (MTR)) as 1) we want to keep them for our use and our friends/family use 2) they are already furnished. MTRs are much less desired for both our personal use and for finding tenants.
We have contributed to a legal fund that is fighting the city's STR quota. I would have zero complaint if the city had grandfathered the existing STRs that have been paying their occupancy tax and following the law. However, for the city to have collected taxes on legal STRs and then to potentially ban these legal STRs seems wrong.
I find out soon whether our two STR units win the lottery and get to continue as STRs. If they do not get selected, maybe the legal challenge will save them at STRs.
Now back to Los Angeles situation. It seems like the city fairly recently changed the rules on STRs. Were they previously collecting taxes for these STRs? Did they do anything to grandfather in existing legal STR units? What if a family had a unit that they wanted to use on occasion and rent when not in use? Is this possible or does the family now need to decide between having it for their full time use on not having any use? I would be disappointed if I purchased a property expecting to use it on occasion and to be able to rent it out when not in use to defer costs and due to rule changes that was no longer allowed. I have no way to know how accurate the study is, but if I had an existing STR that due to a new law could no longer be an STR, I would likely wait for enforcement before taking it off the STR market. Note if they take it off the STR market to place it in the LTR market, they need to get rid of the furniture and all the little items that stock an STR/vacation home.
These cities (Los Angeles, San Diego) are trying to get rid of family vacation homes. I wish their approach preserved the vacation homes option for those that already are using their homes as a vacation home. I understand these cities have a housing crisis, but to remove a legal usage after purchase seems very wrong.
- Residential Real Estate Broker · Sedona, AZ · Member since 2017 · 754 posts · 504 votes3yI have the same speculation. Best advice I could give STR owners is to be compliant with local and state requirements and stay out of hot water. The big bad wolf is those that are operating STR's where they shouldn't, based on STR restrictive CC&R's, or otherwise where cities, counties, or states firmly don't allow it.
Quote from @Nathan Gesner:
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.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Galen Ikonomov:
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.
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.
The DIY Landlord Book4.7245 Reviews @Nathan Gesner I'm not involved in STRs, but I do casually pay attention to the STR market from the sidelines...
In my city, it's illegal to have a STR. However, I remember seeing a story a couple years ago about another law being passed that prevents any government entities from investigating who is operating a STR! ...so, it's illegal to do it, but it's also illegal for the gov. to investigate who's doing it... a very weird dynamic.
Needless to say, there are tons of STR listings, despite them being illegal.
...I've heard that the only time an STR gets shut down here is when the neighbors complain to the city...
...it will be interesting to see how the STR space evolves over the coming years...
- Investor · Nortnern Colorado · Member since 2020 · 170 posts · 132 votes3y
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.
Quote from @Nathan Gesner:
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.
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.
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes3y
The problem with Los Angeles specifically is they don't do a good job communicating to owners what their rights are.
For example you cannot use ADUs for short term rentals in California. Many people do use it for STR because they DON"T know they aren't allowed to. Now it is my understanding that Airbnb does a self certifying question.
- Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes3y
@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.
@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.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3yTechnically, it's a violation of contract law.
Quote from @Cody L.:
The DIY Landlord Book4.7245 Reviews - USA · Member since 2022 · 879 posts · 109 votes3y
- It's not surprising to see that a significant number of short-term rentals in LA are in violation of the law. With the rise of platforms like Airbnb, it's become easier than ever for people to list their homes as short-term rentals, which has led to a proliferation of these types of properties in many markets. However, it's important to remember that there are often local laws and regulations that govern short-term rentals, and it's the responsibility of hosts to ensure that they are in compliance with these rules.
- As the popularity of short-term rentals continues to grow, it's likely that we will see more efforts to regulate and enforce compliance in this market. This could include measures such as hiring additional investigators, increasing fines for violators, or imposing stricter rules and regulations on short-term rentals. It's important for investors to stay informed about these developments and to ensure that they are operating within the law.
- While it's true that the short-term rental market is still relatively new and uncharted territory, it's important for investors to be mindful of the risks and potential consequences of operating outside the law. In addition to the risk of fines and penalties, investors who operate illegally may also face legal action from homeowners associations, landlords, or other parties. It's always a good idea to consult with a real estate attorney or other professional to ensure that you are in compliance with all relevant laws and regulations.
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