What happens if regulations change in your market?

Short-Term & Vacation Rental Discussions
5yFollow

What happens if regulations change in your market?

David Taylor
New to Real Estate · WI · Member since 2021 · 20 posts · 9 votes

As my wife and I research options for our first short-term vacation rental property, we are looking very closely into local regulations in each of the markets/destinations we are interested in. 

What happens if you have an established short-term vacation rental business in an area, but then the local municipality decides it no longer wants to be AirBnB friendly, and enacts new regulations that could put you out of business? Has anyone here experienced this? Do local governments typically “grandfather” established businesses in, or do you simply risk losing your investment?

Thanks!

1Reply
111 views

Most Popular Reply

John Majoris
Investor · Clinton, NJ · Member since 2012 · 118 posts · 70 votes
5y

Hi David,

I have the same concerns, and one of the ways I'm dealing with this is by investing in a mature market with a lot of STR's. My thinking is that the more money coming into a town/municipality via STR's, the less likely they'll be to outlaw them.

Good luck!

5Reply
See this reply in the discussion

25 Replies

Jump to latestLatest
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y

    First it's not Airbnb friendly, it's STR friendly.

    2nd, if you buy in a tourist area you will likely not be impacted.

    3rd. You can switch to a LTR if the rules change or do 30 rentals to say traveling nurses or the like.

    2Reply
  • John Majoris
    Investor · Clinton, NJ · Member since 2012 · 118 posts · 70 votes
    5y

    Hi David,

    I have the same concerns, and one of the ways I'm dealing with this is by investing in a mature market with a lot of STR's. My thinking is that the more money coming into a town/municipality via STR's, the less likely they'll be to outlaw them.

    Good luck!

    5Reply
  • David Taylor
    OP
    New to Real Estate · WI · Member since 2021 · 20 posts · 9 votes
    5y
    Originally posted by @John Majoris:

    Hi David,

    I have the same concerns, and one of the ways I'm dealing with this is by investing in a mature market with a lot of STR's. My thinking is that the more money coming into a town/municipality via STR's, the less likely they'll be to outlaw them.

    Good luck!

    This is my thoughts as well - involve ourselves in an established market. One of our regions of interest has a few municipalities that have recently become “unfriendly” towards STVRs, and in one location (according to some locals) this is primarily due to the local politician also just happening to be a traditional hotel owner and operator. I just wonder what kind of power these municipalities have in affecting business that already operate in these locations. It would be good to know, barring illegal operations, that an established business is somewhat insulated from future political changes/vendettas. 

    2Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    5y

    It would be highly unusual for an area to be re-zoned. But if it did happen, it is also highly unlikely that existing STRs wouldn’t be grandfathered.  In the unlikely event that you have both of these highly unlikely events happen, then you’re in trouble.


    The far bigger risk is running a STR in an area NOT zoned for it, and the municipality decides to enforce their own code. Moral of the story: Don't run a STR in an area zoned residential-only (typically called R-1).

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    3Reply
  • Ryan MoyerBusiness Member
    Property Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 993 posts · 1k+ votes
    5y

    If the market is at least mature enough that you have to get a permit to run your STR then typically any changes will only impact new permits and you will be grandfathered in. Typically. But not always.

    Cosmic Vacations4.9172 Reviews
    WebsiteView Page
    0Reply
  • Nik Moushon
    Architect · Wenatchee, WA · Member since 2018 · 843 posts · 907 votes
    5y
    Originally posted by @Collin Hays:

    It would be highly unusual for an area to be re-zoned. But if it did happen, it is also highly unlikely that existing STRs wouldn’t be grandfathered.  In the unlikely event that you have both of these highly unlikely events happen, then you’re in trouble.


    The far bigger risk is running a STR in an area NOT zoned for it, and the municipality decides to enforce their own code. Moral of the story: Don't run a STR in an area zoned residential-only (typically called R-1).

    This logic doesn't work. STR, by definition, falls under the same definition that hotels are under, which is Lodging. So the only zones that would be "safe" for STR are commercial zoned area. Or small overlay areas that allow for Lodging. This is the logic that the anti-STR crowd is using to get bans for STRs.

    Thus areas don't have to be re-zoned to ban STRs. They just have to add new regulations to the existing zones. Adding new regulation is WAY easier than re-zoning. New regulations are narrowly focused whereas re-zoning has a very broad impact. 


    4Reply
  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
    5y
    Originally posted by @David Taylor:

    As my wife and I research options for our first short-term vacation rental property, we are looking very closely into local regulations in each of the markets/destinations we are interested in. 

    What happens if you have an established short-term vacation rental business in an area, but then the local municipality decides it no longer wants to be AirBnB friendly, and enacts new regulations that could put you out of business? Has anyone here experienced this? Do local governments typically “grandfather” established businesses in, or do you simply risk losing your investment?

    Thanks!

    In August we visited Branson MO, Gatlinburg TN, Asheville NC, Isl of Palms SC, and Rosemary Beach Fl, and a few lesser knowns, to see if we wanted to invest in one or two. It's inconceivable to me that since in each case the whole town's economy is tourism and STR's make that possible, that the locals would allow any changes that would kill the town.

    Replacing the STRs with hotels can't/won't happen for a variety of reasons and since the locals depend on the visitors for their livelihoods, it wouldn't even be brought up at town hall meetings and I'm sure the thought would not be tolerated anyway.

    Your bigger concern should be your competition in running a clean, smooth, appealing, and enjoyable "experience". It was "hit or miss" for a couple of the VRBOs we stayed at. The pictures showed one thing but once we were in the STR things were quite different in a couple of cases.

    There was mold in the corner of the bathroom in one, bathroom towels were thin and cheap, there were electrical cover plates missing and wires hanging out of the wall in another. In one the cooking pots and pans were all warped and about 40 years old & no spatula to flip my eggs in the morning. Do these people eat their eggs raw? Just asking. anyway, a LOT of details were missed in some of the stays. 

    I'd stay in each area again, I just wouldn't return to a couple of the specific STRs since there are so many others I can pick from and hopefully find a better managed place. I think too many people leave it to a property manager and don't actually check in to seee how things look and run at the STR. When you are paying 20% to 30% in management fees, you deserve better.

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    5y

    That is part of the inherent risks involved in a short term rental strategy. 

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    2Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    Depends on the market. Vacation markets are more accepting of short term rentals, because that is the main industry in the area. Areas that implement restrictions will often grand father in existing businesses. This is all the more reason to make sure you are properly registering your STR with the city if required.

    0Reply
  • Melissa Wesling
    Investor · Chicago, IL · Member since 2020 · 148 posts · 97 votes
    5y

    I agree with the above and find that I am looking for future investments in established areas that already have short-term vacation rental regulations in place.  One problem that I've seen is that great vacation spots start to become "touristy" and then the city gets push back about STRs from the year round residents who don't like to see their town change.
    Another thing to pay attention to is HOAs as they may have different rules than the city. A friend of mine had a legal STR where the city allowed STRs and then her HOA voted and decided they would no longer allow rentals for less than 30 days. They did not grandfather her in, but they did allow her to complete her bookings for the remainder of the year. Typically, but not always, you see larger municipalities grandfather in current permits after a regulation change.

    2Reply
  • Wes M.Pro Member
    Rental Property Investor · Southeastern, NC · Member since 2018 · 163 posts · 146 votes
    5y

    Your property would become a legal nonconforming use if the rules changed. For most regulatory changes this allows the use to continue so long as it is not expanded. However, some local governments have added amortization clauses that start the clock for future enforcement. There was a Texas case that found such regulations to be unconstitutional. But in other states similar rules have been upheld. In NC, there is a pending court of appeals case on the legality of STR regs.

    In my experience, it is typically the local full-time residents that lead the charge in getting an STR ban adopted. Like others have said, do your homework and look to those markets that have supported STRs long before AirBNB and VRBO existed.

    2Reply
  • Robert C.
    Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes
    5y

    @David Taylor, I'm not an STR investor, so take this worth a grain of salt. But your question implies that you are buying a property based on inflated STR income numbers. If you buy based on other fundamentals like the underlying value of the property (buying at a slight discount), or regular long term rental numbers, then you will have one or two other exit strategies at least if things go south on the regulations. If you buy based on hotel-type returns, I think that's a much riskier proposition.

    5Reply
  • Fiza Ah
    Investor · Member since 2020 · 80 posts · 71 votes
    5y

    I run numbers to make sure I could afford it as a LTR or be able to sell if the laws change

    2Reply
  • Chris Allen
    Temple, TX · Member since 2018 · 307 posts · 215 votes
    5y

    @David Taylor very normal concerns, and likely what keep a lot of people of of STR's. Like many have said, areas like where I have my cabin (Smoky Mountain), it is highly unlikely that any regulations would change due to that being the primary driving force for the local economy. This will likely be the same for most established "vacation markets". So one way for you to sleep better at night, is to focus on an area that is an established market with already good regulations (FYI, no regulations isn't always a good sign for a market).

    Now another way to look at it, is if you are just wanting to run a STR, and not necessarily a STVR, then you actually might have a more protected asset if you buy correctly in a flexible area. In the market, are you able to "flex" your STR into a mid term rental for traveling professionals? How about furnished rooms for college students? Normal LTR? And if none of these work for you, then hopefully you have an awesome staged property ready to put on the market.

    Consider who your target guest is. Vacationers, military, medical professionals, business travelers, event guest, job relocations, etc..

    0Reply
  • Jefferson Brown
    Investor · South Jordan, UT · Member since 2016 · 89 posts · 72 votes
    5y

    Hey @David Taylor I agree with everything thats been said so far.  Here are my suggestions:

    1.) Only buy in areas that have a short term rental permit.  This gives you a legal right to do what you are doing.  The risky areas are small towns that haven't addressed the short term rental issue yet.

    2.) Join your voice with others.  The best source I know of for this is VRMB (Vacation Rental Marketing Blog) by Matt Landau.  There are a lot of strong short term rental voices on there and joining your voice with theirs is the best defense in my opinion.

    1Reply
  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    5y

    Every day I see more and more cities looking at regulating AirBnB and implementing restrictions.  They even have conferences about this...I recently posted one virtual one you could attend for FREE.  My guess is no grandfathering.  

    Probably your best places are in the country where you will not disturb or get complaints from the neighbors....or that have a very very robust STR community....where it is the norm, not the exception...but even that is no guarantee.

    Be prepared and make sure your numbers work to turn it into a long term rental vs STR. Risky to buy only basing your decision on STR numbers unless you can make back your money very very quickly.

    I like the people that have done it in small towns that need help....maybe where 1/2 the downtown stores are empty.  You may not kill it, but still can make some good green.   I'm thinking hunting destinations, or places that have no/few hotels/motels.  Save a building or a house from being vacant and abandoned.  Help revitalize the town/neighborhood.   Be a positive influence...a giver, not a taker.

    1Reply
  • Zambricki Li
    Real Estate Agent · Los Angeles CA + Lake Tahoe, NV and CA · Member since 2021 · 180 posts · 158 votes
    5y

    Y

    Hey There, You would be grandfathered in, in some cases. I am grandfathered in to a few different listings where the county changed the laws. Though in South Lake Tahoe, CA its been completely phased out..no grandfather. In Los Angeles they changed the laws so you could only STR new construction buildings....so my team has built new adu's which have STR permits as they are new construction. It's risky, you need to stay on your toes. As a rule I make sure any property I target to STR would also cashflow as a longterm rental within 3-5 years so If things change it's still a good investment.

    2Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    5y

    As a general guideline, if you are operating a STR in an area that you question whether it would be allowed (residential), you are probably sitting on a time bomb. It is probably zoned R1, and your neighbors probably hate you.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    0Reply
  • Doug Spence
    Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes
    5y

    @David Taylor Run the numbers as a long-term rental and see if it still makes enough money to meet your goals. Real estate investors have to be flexible and be able to adjust as markets and political climates change. As one door closes, another door opens. Best of luck and keep us updated on your progress!

    0Reply
  • Connor Cushman
    Realtor · Cumming, GA · Member since 2018 · 158 posts · 127 votes
    5y

    Best thing you can do is buy in a market where the local economy and population depends on short term rentals!

    2Reply
  • Gerald Pitts
    Lender · Asheville NC · Member since 2016 · 470 posts · 317 votes
    5y

    Just invest in a vacation rental market, and sleep easier at night! 

    2Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    5y
    Originally posted by @Gerald Pitts:

    Just invest in a vacation rental market, and sleep easier at night! 

    ...and check the local zoning.  There are places even in Gatlinburg TN that are zoned R-1 (residential only).  

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    0Reply
  • Steve Miklashevskiy
    Real Estate Agent · Hillsdale, NJ · Member since 2020 · 87 posts · 39 votes
    5y

    @David Taylor you should know the current regulations and be aware of the upcoming regulations. In Philadelphia they changed regulation a couple of months ago potentially impacting 90% of all STR operators. The regulation enforcement goes in effect in April 2022.

    1Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    5y

    @David Taylor

    Question for the experienced operators/investors in STR market

    1. Are 30 day minimum rentals to say traveling professionals considered part of the STR market?

    2. In the majority of municipalities that placed severe restrictions/conditions on STRs have the 30+ days rentals been subject to the same restrictions?

    3. Have most large cities followed the NYC example which exempts rentals of 30 days or more from STR regulation and restrictions?

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    1Reply
  • Mitch Davidson
    Lender · Asheville, NC · Member since 2020 · 463 posts · 507 votes
    5y

    @David Taylor

    - I disagree with the idea of only buying in locations that already have a permitting system. The start of permitting here in Asheville was a sign of more extreme restrictions to come.
    - I would focus on border communities, close enough to the action but less regulated, perhaps with a view or other outdoors attraction.
    - You could also lessen your risk by avoiding properties that are ultra different/special yet hard to sell or comp (ex: container homes).
    - I agree that you should worry just as much about HOA's, even small, almost non-existent ones. It only takes one motivated neighbor to cause change.
    - I agree that you can take comfort that you should still be able to cashflow if you have to flip to a furnished month-to-month approach. The demand seems poised to continue to rise for a while.

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free