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The possibilities and pitfalls of going the Airbnb route

Back Article Jul 19, 2018 By Ryan Lundquist

On any given night in the Sacramento region, there are literally thousands of rooms available for rent on Airbnb. There’s a studio in Oak Park for $69, a room in Rocklin for $45 and a large six-bedroom estate in Clarksburg for $650. For those preferring eclectic properties, how about a yurt in El Dorado County’s Garden Valley for $125 or an Airstream trailer in Curtis Park for $62?

Airbnb is all the rage these days, in Sacramento and beyond. And why not? After all, we’re hearing a lot of hype about becoming successful in real estate through short-term rentals.

The allure of Airbnb for owners is to charge a higher rate for nightly guests compared to what a typical tenant might pay over a month. For example, a duplex owner in Midtown would get up to $3,300 per month for one of her units rented to nightly Airbnb guests, while market rent for a monthly tenant would be $1,900. Thus, the owner could potentially gross a whopping $1,400 extra simply by going the Airbnb route. Who wouldn’t want to rake in so much additional cash?

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Before you move into your garage to open up the rest of your house to tourists, or before you buy a new property hoping to get rich off Airbnb-ers, let’s consider some of the possibilities of short-term rentals — and the pitfalls.

How it works: Normally, you don’t need a special permit to rent to someone. But when it comes to Airbnb, you actually do in many areas, because it’s sort of like operating a hotel business with guests coming and going. Within Sacramento’s city limits, if you rent to someone for fewer than 30 consecutive days, you need a short-term vacation rental permit for $125 per year and you pay a $50 annual business tax. (The rules might not be the same in every location.)

Keep in mind, you can rent your primary residence as an Airbnb every single night — but if you don’t live at the property, you can only do short-term rentals up to 90 days, unless you obtain a conditional use permit allowing you to do it longer. The City of Sacramento isn’t going to be left without a piece of the action either, as local government imposes a nightly 12 percent transient occupancy tax on Airbnb rentals.

This may sound like a well-oiled machine, but in actuality, not every unit being used as an Airbnb is registered with the City. Just because permits are required doesn’t mean people are getting them. No surprise there, right?

The truth is, Airbnb isn’t always so great for neighbors. This is something New Orleans has been learning, with over 5,000 Airbnb units with nearly 83 percent of these properties being entire homes or apartments. With such a massive amount of short-term rentals, residents have been complaining about disruptive tourists partying in quiet neighborhoods. Additionally, there’s now less housing available for residents, since so many units are being used instead as short-term rentals for tourists.

To its credit, the City of Sacramento only allows up to six guests per Airbnb stay, so hopefully most guests aren’t throwing thundering ragers with standing-room only.

Here are a few more things to consider:

  1. Don’t expect glamour: It’s easy to get distracted with the glamour of lofty earning potential, but running an Airbnb is hard work — it’s a business. A short-term rental lifestyle is not for everyone, because there’s a constant influx of guests, communication, marketing, reviews (good and bad) and, of course, laundry.
  2. Buy based on market rent: Units might be cash cows for owners collecting higher “hotel” rents. But buyers should pay attention to the rent a typical tenant would pay each month. Why? Because if you buy based on an inflated Airbnb rate, and decide running a short-term rental is not for you, then collecting a lower market rent could end up drastically changing the numbers, which changes how good the investment really is.
  3. Remember our housing shortage: We have a housing shortage in California, and the short-term rental phenomenon probably doesn’t help us, because it can take away units that would otherwise be used for long-term tenants.

Yet, before we blame Airbnb for the housing shortage, let’s step back and realize we’ve had anemic new construction for over a decade — that’s the big culprit here. Sure, it doesn’t help our situation to have more units become short-term rentals, but the bigger issue is we need cities and counties to focus on making it easier and less expensive to build more single-family homes and apartments if we’re going to put a real dent in the housing shortage.

Right now there’s so much attention on Airbnb and some local investors are doing quite well with it too. My advice? Just make sure it’s right for you before being swept away by the hype. 

Join Ryan every other month as he tackles the big real estate issues in our region. 

Comments

Jeff Hamric (not verified)July 26, 2018 - 6:41am

Great points on Airbnb. When we go on family vacations, we usually get a large house so we can all stay together. It is also way more affordable when you are splitting the rental fee 6 ways!

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