The rise of short-term rentals, with Airbnb especially, has taken the real estate world by storm. Some cities have embraced this new trend with open arms and have watched Airbnb rentals thrive as a result. Other cities, for one reason or another, have not seen the same success with their short-term rentals. Today, we’re putting the wonderful and dandy short-term rental cities aside and are instead analyzing the dark side of things. What are the worst US cities for short-term rentals?
There are many reasons why Airbnb rental properties may not work well in certain cities. The most common reasons include legal issues, specifically excessive taxes and legal restrictions. As you’re about to see, the cities on our list will relate to one or more of these issues.
New York City
The City That Never Sleeps would seem like the perfect city for Airbnb rentals. The city is flooded with hotels that can be too expensive for the average American or foreigner, making Airbnb rentals the suitable alternative. Unfortunately, the city’s relationship with Airbnb has been far from ideal for some time, especially with a significant number of illegal Airbnb rentals. Recent legislation has been a huge contributor to this icy relationship. In October 2016, New York State legislature passed a law that forbids hosts to advertise their full home for less than 30 days on Airbnb. The homes in question are buildings designed for three or more families. A first-time violation will slap the host with a $1,000 fine. A repeated violation warrants a $5,000 fine, and a third violation will be fined at $7,500. Full homes are the target of this legislation, which means that shared rooms or dwellings are exempt.
New York City’s restriction makes it very difficult to operate an Airbnb rental property there. It also limits the use of one of the main types of properties (multi family properties) for Airbnb. This tight restriction, along with multiple taxes and a rent control law, makes the Big Apple a city to stay away from for Airbnb hosts.
Related: What’s the deal with Airbnb New York?
From the East Coast to the West Coast, some cities are bad for Airbnb rentals. San Francisco’s issues with Airbnb are like the complaints of New York City’s, the main one being illegal rentals. In San Francisco, about 75% of Airbnb rentals are not properly registered. This has led to restrictions on Airbnb properties there. The biggest restriction Airbnb hosts in San Francisco face is that they can rent out their Airbnb property for only 90 days a year.
Related: San Francisco’s New Rule on Airbnb Investment Properties
Being able to rent out for only 90 days a year isn’t the only problem facing San Francisco Airbnb hosts. They also have to deal with a 14% transient occupancy tax rate, which includes any guest or cleaning fees. However, this tax may not be required for all Airbnb hosts in the city. Airbnb is the only Qualified Website company in San Francisco, which means that if hosts rent only through Airbnb, they are exempt from the tax.
Denver’s problems with Airbnb investment properties boil down to two things: eligibility and taxes. For starters, Airbnb real estate investors in Denver can only rent out their primary residences as Airbnb properties. Proper documentation will be required. A short-term rental license is needed by Denver Airbnb investors as well. In order to receive the license, a real estate investor will need to have liability insurance. Once a property has met the many eligibility requirements, the investor will need to face various taxes. For reservations that are fewer than 30 nights, a 10.75% lodger’s tax will need to be paid. If a real estate investor earns more than $500 a month, an occupational privilege tax will be imposed.
Oakland may not have many legal restrictions when it comes to Airbnb rentals. What it does have, unfortunately, are excessive taxes. Hosts in Oakland are required to pay a 14% transient occupancy tax (which includes cleaning fees) for reservations that are 30 days or less. The transient tax isn’t the only of Oakland’s tax issues. According to R Street’s Roomscore 2016 study, Airbnb investors in Oakland have to pay a higher rate in gross-receipts tax compared to hotels. This translates to Airbnb investors paying more overall taxes than hotels. These two situations make having Airbnb rentals in Oakland very tough.
Related: Challenges of owning an Airbnb investment property?
Atlanta, along with every other city on this list, would seem like a great fit for Airbnb rentals. But of course, Atlanta is on this list, which means it is the complete opposite of a great fit for Airbnb income properties. Atlanta is so bad for Airbnb rentals that it received an F on the aforementioned Roomscore report. The situation in the city is so detrimental that the report described Airbnb rentals in Atlanta as “effectively illegal”. One reason this is the case is due to the severe legal restrictions on short-term rentals. Atlanta’s restrictions are so profound that they were among the worst in the report. Atlanta’s licensing requirements are also a nuisance. Airbnb real estate investors in the city require two licenses: a business license and a hotel license. The business license also comes with an annual tax. This additional tax could eat away, no matter how little, of your Airbnb rental income.
Oklahoma City parallels Atlanta’s status on Airbnb rentals in different ways. Just like Atlanta, Oklahoma City received an F in the Roomscore 2016 report. And just like Atlanta, Oklahoma City’s severe legal restrictions were part of the worst of the worst in the report. The bright side is that the city’s licensing requirements are different from Atlanta’s. The dark side is that Oklahoma City is still a bad city when it comes to Airbnb rentals.
Choosing Airbnb as a rental strategy is a smart and lucrative real estate investment decision. It’s one of the best ways to make money in real estate investing, and it’s also fun to do! However, there will always be cities in which the rental strategy is ineffective. It’s best to avoid those cities and find areas reciprocating the Airbnb idea.
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