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Coping With Vacation Rental Bans

by Broderick Perkins

A new law working it's way through the Kauai, HI, county council would regulate some vacation rentals and outlaw others in certain residential areas.

In Clearwater Beach, FL, 30 property owners sued the city over an ordinance that outlawed short term rentals of less than 30-days, effectively ending the business of vacation rentals.

The town of Blowing Rock, NC, does allow for some short term rentals but only in certain zoning districts, based on a law that had been on the books since 1976, but not fully enforced until 2000.

Since then the enforcement has pitted local residents against property owners and rental agents.

In your zeal to seal a deal in the hot vacation rental sector of the second home market, don't overlook the fact that the cash flow you hoped to land from rental income may not exist.

That's because a growing number of housing communities -- from individual homeowner association-run developments to entire cites -- may stiff vacation rental returns by slapping bans on short term leases.

"It seems it is becoming more prevalent. I hear this from at least one owner a week," said Christine Karpinski, real estate investor, author and director of Owner Advocacy for HomeAway.com, a network of vacation rental listing websites.

"This is why when I advise people who are looking to purchase, I always tell them that the No. 1 step is to check for home owner association, city and town zoning laws to be sure there are no restrictions," she said.

Karpinski, who chronicles the trend in How To Rent Vacation Properties by Owner, Second Edition (Kinney Pollack Press, $26), says there are three primary conditions driving vacation rental bans.

NIMBYism (for Not In My Back Yard). The locals don't want you encroaching on their paradise. They don't want noise, crowed roads and after hour rowdiness from vacationers on a bender.

"Even if an area has 25 percent owner-occupied properties vs. 75 percent owned by out-of-town residents, the out-of-towners often have no 'vote'.

Economics. Vacation home demand in sleepy towns drives up prices and the locals out of town. That makes it difficult for local service industry to find low and minimum wage employees to help run their operations.

"Two places that come to mind are Hawaii and the Florida Keys. Both have limited the number of vacation rental licenses they are issuing," said Karpinski.

Competitors. Vacation rental owners are moving in on hotels, motels and bed and breakfast accommodations. Hotels have deep pockets and lots corporate attorney-time to side with the locals or pick their own fight.

As an example, the hotel industry recently upped the ante on spending this year for capital improvements -- from $5 billion to $5.5 billion -- largely to attract the new breed of traveler.

According to PricewaterhouseCoopers' Hospitality & Leisure practice, the bulk of the cash will go into adding technology lures to their accommodations -- in-room MP3 (a digital audio format used by iPods and similar devices) compatible sound and television systems, high definition televisions (HDTV) and high-speed wireless Internet services.

What can you do?

First, avoid areas where you'll have to fight for short term rentals if you can't afford the battle, says Karpinski.

Otherwise:

Band together. Join other owners and property managers to lobby against proposed bans and fight back.

Collect and pay sales taxes to give jurisdictions a financial incentive for short term rentals.

"Your number one defense against vacation rental bans in your area is to collect and pay sales taxes. Sales tax revenue has been a heavily weighted deciding factor on whether or not the bans get passed. Where the majority of the property owners collect and pay sales taxes, they don't usually lose their right to rent.

Be an active community participant. Attend meetings, volunteer for events, sponsor others. Keep abreast of home owner association activities. Know your zoning laws. Activism lets the community get to know you and see that you aren't just an investor draining community cash into your pocket.

Screen your renters. You want responsible guests who don't trash your property or the neighborhood. Clearly inform renters about parking, noise and other community rules.

Stay in touch. Read the local paper online or subscribe to keep abreast of the general community and residents' issues and concerns. Likewise stay up on the general news from other similar communities.

Published: April 11, 2007

Use of this article without permission is a violation of federal copyright laws.

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home.

The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services.

The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home.

Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News.

Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake.

He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications.

In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.

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