Want to invest in Airbnb rentals? Stay away from these cities with the most Airbnb legal issues in 2020!
As a real estate investor, there are numerous investment strategies available to you for making money. In recent years, buying an investment property to rent out on Airbnb has been the strategy for both new and experienced investors. Investing in short-term rentals has proven that it can generate a higher rental yield and a better return on investment. However, the Airbnb rental strategy is not without controversy. Airbnb claims that its site offers an “economic lifeline” to help residents pay their bills, rent, or mortgage. Critics of the site, however, claim the service removed affordable housing by turning rentable apartments into unofficial year-round hotels.
Almost all major US cities are struggling with how to handle the boom of short-term rentals. Many have already passed or are considering strict Airbnb regulations. Moreover, some even completely banned non-owner-occupied rentals, making it illegal to invest in Airbnb. Hence, before buying an Airbnb investment property, real estate investors must check state and city short-term rental rules and regulations. As success in Airbnb real estate investing relies on location, this begs the question: Where is Airbnb illegal in 2020? In this article, we provide a summary of Airbnb regulations by city in 10 US cities with the most Airbnb legal issues.
#1. New York City, NY
As the biggest tourist magnet in the world, NYC quickly became one of the most profitable Airbnb locations. However, Airbnb properties purchased by out-of-state real estate investors put further pressure on the already skyrocketing New York City real estate prices. NYC short-term rentals also took away from the supply of long-term rentals in a housing market where most people rent rather than own a home. This negative effect led authorities to impose strict NYC Airbnb laws. Here are important New York Airbnb regulations for investors to know:
- Only owner-occupied short-term rentals are legal with a maximum of 2 paying guests who can stay at the property for fewer than 30 days.
- Renting out entire homes, apartments, and other properties for less than 30 days is illegal even if the Airbnb host lives in the property.
- Only rooms and parts of homes can be rented out on a short-term basis and only when the host is present during the Airbnb guests’ stays.
- Airbnb hosts can’t install any locks because Airbnb guests must have free and unobstructed access to all rooms and exits.
- Apartments in a Class A multiple dwelling (buildings with 3 or more permanent residential units) can’t be rented on out on a short-term basis.
- Advertising Airbnb listings that don’t comply with NYC Airbnb laws is illegal. Illegal advertising is subject to hefty fines starting at $1,000 and up to $7,500.
All of these Airbnb rules and regulations mean buying an investment property for the sole purpose of renting out on Airbnb in the New York City housing market is not possible in 2020. If you’re a New York real estate investor living in the city, the only way to profit from short-term rentals without facing Airbnb legal issues is by renting out a private room or house hacking.
#2. San Francisco, CA
San Francisco, where Airbnb’s headquarter is located, was among the first US cities to regulate short-term rentals and have legal issues with Airbnb. As early as 2014, the city limited the number of days hosts can rent out a property for short stays. Since 2015, Airbnb hosts have been required to register as both a short-term rental and a business. Airbnb legal issues and challenges between Airbnb and San Francisco continued in 2017 when both parties settled in court. Here are the Airbnb laws that made it one of the cities where Airbnb is illegal for investors:
- All Airbnb hosts must be registered with the city and receive a certificate from the San Francisco Office of Short-Term Rentals.
- Airbnb rentals must be primary residences and hosts must live in the short-term rental unit for at least 275 nights per year and be present during the guests’ stay.
- Registered hosts may only conduct un-hosted short-term rentals for up to 90 nights/year.
- A spare room can be rented out for an unlimited number of nights as long as the host is also staying at the property.
- Certain types of housing are off-limits for short-term stays, including income-restricted affordable housing and student housing. It’s also illegal to rent out unique homes (like tree-houses, teepees, and RVs) as Airbnb properties.
- Airbnb laws also require hosts to collect San Francisco’s 14% lodging tax from guests.
#3. Los Angeles, CA
After 3 years of debate on how to regulate Los Angeles short-term rentals, the City Council passed a new set of rules in a Home-Sharing Ordinance back in December of 2018. Here are some important Los Angeles Airbnb laws that real estate investors need to keep in mind moving forward with a short-term rental in one of the best cities in California:
- Non-owner occupied rentals are illegal in LA. Hosts can only rent out a property on Airbnb if they live in it for at least six months a year.
- LA short-term rentals must be approved for residential use. Any structure for non-residential use (car, shed, trailer, etc.) cannot qualify for home-sharing.
- Hosts must be registered with the city Planning Department and must pay an $89 fee and a 14% city transient occupancy tax.
- Airbnb hosts can only register/operate one short-term rental unit at a time.
- Airbnb Los Angeles hosts are allowed to rent out their residences for a maximum of 120 nights/year.
- To host for an unlimited number of nights, Los Angeles Airbnb hosts must register for “extended home-sharing”, paying an $850 fee.
- Hosts are responsible for the actions of their Airbnb guests and must provide them with a Code of Conduct regarding safety and security requirements.
Naturally, these Airbnb legal issues make it difficult for real estate investors to buy and rent out short-term Los Angeles investment properties. If you’re willing to buy a primary residence in LA, however, you still have the option to register your property for home-sharing and legally operate it as a vacation rental.
To start looking for and analyzing affordable Los Angeles homes for sale, click here!
#4. Washington, D.C
The nation’s capital recently joined the list of cities where Airbnb is illegal for real estate investment. As stated by a city regulation act, starting October 2019, property owners in DC can only rent out one home (their primary residence). So if you own a second home in Washington DC, you’re not allowed to rent it out as a vacation rental. Aside from the owner-occupied requirement, Airbnb DC laws also include:
- Hosts must register with the city, pay for, and receive a valid basic business license with a “short-term rental” endorsement.
- For those who wish to rent out an entire property, an additional “vacation rental” endorsement must be obtained.
- If the short-term rental is within a condominium, cooperative, or homeowner association, hosts must provide proof that the association approves.
- Hosts must have current liability insurance of at least $500,000 which may be provided by the booking service.
- Un-hosted Airbnb rentals are limited to a maximum of 90 nights a year.
- A host shall pay all applicable transient lodging taxes.
If you’re interested in investing in Washington DC traditional rentals instead so you won’t have to deal with Airbnb legal issues, read: Washington DC Real Estate Market Trends 2020.
#5. Boston, MA
Airbnb had been battling with Boston in court over short-term rental regulations in the past year. They have reached a settlement whereby all listings will be required to display a city-formatted registration number by December 1, 2019, or they’ll be removed. There are other legal issues with Airbnb Boston to keep in mind as well. The city imposed strict Airbnb laws and regulations which severely limit who can actually list their property for rent as a vacation rental. According to the current Boston short-term rental rules:
- Non-owner occupied rentals which are not the owner’s primary residence are banned in the city. Only primary residents who live in their properties for at least 9 months can host short-term stays for 28 days or less.
- Hosts must register with the city, have an inspection done, and renew their short-term rental license each year.
- If you want to rent out a spare room, you can apply for a license for $25 per year. But if you want to rent out the entire primary residence, the license fee is $200.
- Boston Airbnb regulations also require hosts to pay the same 5.7% state tax as hotels.
For a real estate investor, these Airbnb legal issues mean that buying Boston short-term rental properties from out of state is not an option in 2020. But just like all the US cities on this list, you can still resort to house hacking as a real estate investment strategy.
#6. Chicago, IL
Investors in the Chicago real estate market will also face Airbnb legal challenges in 2020. The Chicago City Council passed Airbnb laws in 2016. According to the ordinance, renting out Chicago homes as short-term rentals is only legal if it’s your primary residence. You also need to register and obtain a vacation rental license to host on Airbnb Chicago. More Chicago Airbnb rules and regulations include:
- For multifamily homes with 2 – 4 units, only primary residences can operate as Airbnb rentals and only one unit per building can be rented.
- For multifamily homes with more than 5 units, the number of short-term rental units is limited to one-quarter of the total number of units or 6 dwelling units, whichever is lower.
- Hosts of Chicago vacation rental properties must pay a total of 10.5% city tax on the gross rental, including a 6% sub-charge and a 4.5% base rate.
- To ensure compliance, the ordinance establishes a clear penalty structure, as violators may be fined $1,500 to $3,000 per offense.
#7. Las Vegas, NV
In 2018, the Las Vegas City Council passed new Airbnb rules and regulations that ban non-owner occupied rentals. Las Vegas only allows primary residences to be rented out on a short-term basis, making it one of the US cities where Airbnb is illegal for real estate investors in 2020. The city also has some of the toughest Airbnb legal issues. Key Las Vegas Airbnb laws include:
- Hosts must obtain a business license, carry liability insurance of $500,000, and renew their rental permit every 6 months to avoid any fines.
- Unless you live in the property and it has 3 bedrooms or less, you must get a special permit that costs over $1,000.
- Owners of Las Vegas short-term rentals must be present during the stay.
- No new Airbnb rentals 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.
- Any violation of these Airbnb rules and regulations can subject you to fines of up to $500/day.
#8. Baltimore, MD
Baltimore recently joined cities where Airbnb is illegal after passing strict regulations on vacation rental properties in December of 2018. The new Baltimore Airbnb laws ban people from renting out properties other than their primary homes on a short-term basis. Accordingly, buying an Airbnb investment property is no longer an option for investors in the Baltimore real estate market. Other Baltimore Airbnb legal issues and laws that will take effect starting December 31, 2019, include:
- Airbnb hosts need to register with the city.
- Each host must have a license from the City, and pay $200 to renew it bi-annually.
- Hosts of short-term rental properties must also collect a hotel tax of 9.5%.
- Hosts must also comply with the city building, fire, and other codes.
If you want to buy Baltimore rental property, consider a small multi-family home like a duplex or a triplex. You can buy such a real estate property as your primary residence, live in one unit, and rent out the others – whether as long-term rentals or short-term rentals. This investment strategy is a great way of investing in real estate and staying clear of Airbnb legal issues in 2020!
#9. Orlando, FL
Orlando has always been a hot Airbnb market, which isn’t surprising considering its status as the world’s most visited family destination in the US. Nonetheless, Orlando is one of the US cities which has enforced serious tightening on Airbnb rules and regulation, which created Airbnb legal challenges for investors. In 2018, the city only legalized vacation rentals to primary residents while prohibiting non-owner occupied rentals. Orlando Airbnb laws are very specific and stipulate that:
- Airbnb hosts can have up to one booking at a time, a maximum of four non-family members on-site at a time, and no more than two people per room.
- Orlando short-term rentals can take up no more than half the size of the property, and the owner has to be present during the visit.
- If you own a duplex house, only one unit can be fully rented out on Airbnb provided that it’s of equal or lesser size compared to the other unit.
- Orlando Airbnb hosts need to apply for a short-term rental permit from the City of Orlando. The first-year fee amounts to $275, while it drops to $125 for each subsequent year.
- Hosts also have to pay a 6% transient rental tax, a 0.5% county discretionary sales surtax, and a 6% tourist development tax.
For more information, make sure to check out our Orlando Real Estate Market Report.
#10. Santa Monica, CA
Santa Monica prohibits renting out an entire home as a short-term rental while the host is not present. The city only allows “home-sharing” where residents can rent out rooms or parts of their homes for less than 30 days and while being present during the visit. Meaning, un-hosted, or non-owner occupied rentals are still illegal in Santa Monica. The city claims the reason behind its tough short-term rental regulations is to preserve its housing stock and residential communities. According to the Santa Monica Short-Term Rental Ordinance, anyone operating a home-share must:
- Apply for and obtain both a home-sharing permit in addition to a business license which should be renewed annually.
- Collect and remit Transient Occupancy Tax (14%) from guests.
- Not book or rent to more than two groups of visitors for any given date.
- Limit the occupancy of the home-share the lesser of 10 persons, one person per 200 square feet of the dwelling unit, or two persons (excluding minors) per bedroom.
- Maintain liability insurance to cover home-sharing with minimum limits of not less than $500,000.
Where Can You Invest in Airbnb Without Legal Issues?
If buying an Airbnb rental property is still your strategy of choice for making money in real estate in 2020, stay clear of the above US cities where Airbnb is illegal. Instead, investors should focus on finding the best Airbnb investment opportunities in cities with no or little Airbnb legal issues. Being an Airbnb host in these cities is not only headache-free, but it is also profitable according to our Airbnb data. To make sure you invest in the best cities for Airbnb investors, consider these 20 Cities with No Airbnb Legal Issues in 2020!
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