Airbnb is a magical site. It can help travelers save a lot of money and give them more options on where to stay instead of having to rely on a hotel. It also provides homeowners who offer their home (or even just a room) to short-term guests with an added source of income to pay down their mortgage and debts. Even property investors benefit from Airbnb as a rental strategy to make money in real estate. However, there are cities where Airbnb is illegal for real estate investors!
Many cities have legal restrictions on Airbnb rentals. These vary greatly depending on your rental property’s location, what type of property you own, and how long you rent it out as a short-term rental. In some cities, restrictions are so severe they make most Airbnb rentals illegal. Unfortunately, short-term rental regulations can be confusing and, as a marketplace, Airbnb doesn’t provide legal advice to help real estate investors understand and comply with these laws.
Therefore, before deciding to purchase an Airbnb investment property, it’s important that you do your homework and check Airbnb laws in your city. Real estate investors operating in cities where Airbnb is illegal may face legal issues and be forced to pay thousands of dollars in fines. So, where is Airbnb illegal? Here are 5 major cities in the US housing market where owning an Airbnb investment is illegal and what you need to know if you want to invest in one.
1. Los Angeles, California
The most recent city to enact strict Airbnb regulations is Los Angeles. The City Council passed a law in December 2018 which states that Airbnb hosts can only rent out their primary residences. This is the property where the host lives for a minimum of 6 months out of the year. Airbnb laws in Los Angeles also limit hosts to 120 days per year. The only way around this is to get special approval from the city, which will come with additional costs. Also, hosts need to register with the city and pay $89 annually.
It’s clear that these Airbnb regulations target real estate investors. Because it’s more profitable for them to rent to travelers vs long-term, traditional tenants, city officials argue that Airbnb investors are taking rental units away from permanent residents. Starting July 1, 2019, Los Angeles will become one of the cities where Airbnb is illegal for investors.
2. New York City, New York
While New York City is one of the biggest Airbnb markets, it’s one of the top places where Airbnb is illegal. In 2016, New York Governor Andrew Cuomo signed a law which states that renting out an entire apartment for short-term stays of less than 30 days is illegal – even advertising such a rental property is illegal! The city allows only permanent residents to rent out for less than 30 days, and only while they’re actually in the house. Airbnb hosts are also not allowed to list more than one home at a time.
Technically, this rule doesn’t apply to single-family homes in New York City, but they still have zoning restrictions. In addition, NYC is asking Airbnb to provide the addresses and names of hosts to the city’s Office of Special Enforcement every month (and to note whether the listing is for a whole apartment or just a room) to automatically know who isn’t playing by the rules. As a New York real estate investor, the only way to profit from short-term rentals without facing Airbnb legal issues is to rent out a private room.
3. Santa Monica, California
After banning short-term rental properties in residential areas for years, Santa Monica eased this prohibition in 2015 by allowing Home-Sharing. This form of short-term rentals entails that only primary residents are free to host short-term stays of less than 31 days, and only if they’re present during the stay. Meanwhile, un-hosted Airbnb rentals (or vacation rentals) remain unlawful, making Santa Monica one of the cities where Airbnb is illegal for investors.
The city claims that Home-Sharing enables residents to have that extra income and ensures that real estate investors do not take housing units (mainly affordable ones) and turn them into de facto hotels. Santa Monica also has some of the toughest short-term rental regulations in the country. Hosts are not only required to be present during the renter’s stay, but they must also register for a business license and collect the city’s 14% occupancy tax – regardless if the rental is just a room or an entire house.
Our advice: rent out traditionally. Based on data from Mashvisor’s Investment Property Calculator, Santa Monica’s multifamily rental properties generate an average monthly rental income of $9,302 – one of the highest in the country! In addition, renting is far more affordable for the majority of residents. According to the US Census Bureau, only 27% of Santa Monica’s housing units are owner-occupied and the remaining 73% are rental properties.
Want to start looking for traditional rentals? Start out your 7-day free trial with Mashvisor now to find lucrative investment properties that match your criteria in a matter of minutes!
4. Las Vegas, Nevada
The next city where investors will face Airbnb legal issues is Las Vegas. This past December, the Las Vegas City Council voted to approve new rules for short-term rentals. The new Airbnb regulation includes banning new permits for those that are not owner-occupied. This means the city will only issue permits for primary residents. Las Vegas real estate investors are, thus, not allowed to rent out their investment properties for less than 31 days in the city on Airbnb or similar vacation rental websites.
These Airbnb regulations will likely put the majority of Airbnb rentals out of business since only about 15% of short-term rentals in the city are owner-occupied. In addition, owners of short-term rentals in Las Vegas have to be present during the stay. They must also obtain a business license, carry liability insurance of $500,000, and renew their rental permit every 6 months to avoid any fines or Airbnb legal issues. Other short-term rental regulations in Las Vegas include:
- Short-term rentals can’t have more than three bedrooms (those with more have to pay a whopping $1,000 registration fee)
- No new Airbnb rental can be within 660 feet from any other existing listing
- The city limits overnight guests to 12 or fewer per home or apartment
- Hosts must register with tax authorities, collect taxes from guests, and remit them to the city and county
As you can see, Las Vegas is not only one of the cities where Airbnb is illegal for real estate investors, but it also has some of the toughest short-term rental regulations.
5. San Francisco, California
As in other cities in the California housing market, Airbnb is facing criticism from housing activists in San Francisco who blame the site for reducing the already-limited supply of housing. At the beginning of 2018, the city put into place some of the most stringent Airbnb laws in the country, which led to thousands of listings being taken down from Airbnb. The law states that Airbnb and other short-term rental sites are prohibited from including listings that aren’t registered with the city. If you don’t want to run into Airbnb legal issues in San Francisco, you must:
- Register with the city’s Treasurer and Tax Collector as a business entity
- Register with the city’s Office of Short-Term Rentals in order to recieve a certified host certificate (which will need to be renewed after two years)
Airbnb hosts must also be permanent residents and live in the short-term rental property for a minimum of 275 nights per year and be present during the stay. This makes San Francisco one of the cities where Airbnb is illegal. Real estate investors looking to make money from Airbnb rentals are not welcomed. Moreover, the city bans hosts from having more than one listing and places a cap of 90 nights per year for renting out short-term. Short-term rental hosts are also responsible for collecting a 14% lodging tax from guests.
Violating any of these laws will cost you big time. As a matter of fact, San Francisco fined landlords $2.25 million last November for owning 17 illegal Airbnb rentals! They’re now banned from operating any short-term rental for at least 7 years.
So, Where Should You Invest in Airbnb?
If owning an Airbnb is your preferred investment strategy to make money as a real estate investor, we don’t recommend investing in these cities where Airbnb is illegal. That said, there are still cities in the US where Airbnb is legal and profitable. These are the best cities to consider for buying an Airbnb investment property. To learn more, read Airbnb Regulations 2018 – Invest in These Cities Where Airbnb Is Legal.
Meanwhile, if you still want to invest in real estate in one of these 5 cities, then owning a traditional rental property is your best option. And with Mashvisor’s Investment Property Calculator, you’ll increase your chances of finding the most profitable one that matches your criteria. To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
To learn how Mashvisor can help you find profitable Airbnb properties where this strategy is legal, schedule a demo with our team.