Q: Homeowners in our community are trying to limit rentals to 30 days or more (right now there is no limit on rentals in our Master Declaration) in our single family homes, and continue to allow rentals of any length in the condo portion of our master-planned community.
Since we have no limits on rentals in our single family homes, some of the homes in our community are rented for a week or sometimes even less. Those of us on the board of directors of the homeowners association are trying to be sensitive to people who are having trouble in this economy. But we’re also trying to also limit short-term rentals – by this I mean weekend and weekly rentals.
We want to change our Master Declaration with an amendment to allow only rentals of 30 days or more.
There are property management companies renting some of the homes in our community – we live in Florida – the homes are furnished. Families rent here instead of going to a hotel. The companies have availability calendars on their site – you can rent a home online.
My question is this: What effect does the presence of short-term rentals in a master-planned community have on real estate values, for both homes and empty lots?
Thanks – I’ll look forward to your answer. I’m hoping that having homes with short-term rentals decreases the property values of other homes/land in the community because those of us who are pro-limits want to find research to support this theory.
A: You must live in a lovely vacation area and your neighbors are renting their properties on a website like Vacation Rentals By Owner (VRBO.com), among others.
When a home is located in a non-vacation location, it’s less likely that people will be looking for rentals of less than 30-days. In vacation destinations, having a home where short term rentals are permitted is like living near or next to an extended stay hotel. You have people constantly coming and going.
While the prospect of living next to a home used for short term rentals may be unappealing, some of the alternatives may be worse. If the short term rentals are going well and the people using those homes are respectful of the community, you may want to consider what’s going on in the housing market before deciding that the short term rentals in your community should not be allowed.
In a vacation destination, having the ability to rent property even in the short term would be a huge help to struggling homeowners and may prevent homes from going into foreclosure or forcing homeowners to sell their homes in this market. Allowing these rentals may elevate interest from investors into keeping the homes or looking for homes to invest in your community. Current homeowners can use the income they receive from these rentals to pay association dues and expenses, in addition to paying their mortgage and real estate taxes.
If a lot of people are renting their homes on a short term basis and local ordinances allow these rentals, your community might be benefiting from these rentals. The alternative for those homeowners may be to sell their homes now. Only you can gauge how many homes are being rented and what the impact would be if those homeowners suddenly all decided to sell at about the same time.
In a non vacation location, it might be harder to rent a home on a short term basis and you may have more issues trying to figure out who is coming and who is going in your community and for what purpose. It might even be a bigger negative for that community to have those short term rentals, particularly if the homes are used for questionable purposes.
What many cities around the country are finding is that there is a demand to stay in a home rather than a hotel, which is why you might see hotel revenue dip and cities start to levy fines and regulate homeowners who do use their homes for short term rental purposes.
I can see why this is highly contentious in communities. While I’m all in favor of allowing owners to rent their properties (especially in this economy with its housing market stagnation), you need to be careful.
You might consider allowing the short term rentals but making sure the community is protected. As in some condominium communities, the renter or the owner of the home must have adequate insurance, may have to place money in a fund to insure that damage is not caused by the renters to the common areas of the community and to cover any fines that might be levied against the renters or the owner, and, perhaps, levy a fee for each rental.
While you don’t necessarily need to share in the revenue received by the homeowner, the community does bear some of the brunt of having so many users come and go and the owner that rents his or her home may have to pay some additional money to the association for that added use.
Finally, when it comes to home value, it may be hard to say what the impact would or could be on your community. If you ban all short term rentals, values could fall drastically as homeowners unload their empty homes. If only a few homes are affected by the ban, the values might not be affected much. You would have to evaluate how things would end up in your community. Whatever way you go, try to anticipate what may happen to those who are renting their properties to help defray costs if you ban short-term rentals.
If you pass a rule and a flood of homes come on the market, you may find that property values will fall and remain depressed for some time to come. The normal rules of real estate are somewhat distorted by the limited ability to obtain financing on second homes and investment properties, the large number of homes on the market and the drop in real estate prices over the last couple of years.
Whatever your master association decides to do, keep us posted so we can write about your results.