During the pandemic, short-term vacation rentals grew in popularity, as people stayedcationed rather than traveled abroad. As interest rates have risen and vacation rental supply has increased, the appeal of short-term vacation rentals has declined. Consequently, short-term vacation rentals are no longer considered an investment by buyers.
There are a number of reasons why short-term vacation rentals are no longer as attractive to buyers. It has become more expensive to finance a second home in recent months due to a sharp rise in interest rates. Second, the supply of vacation rentals has increased, as more people have decided to rent out their homes on a short-term basis. As a result, vacation rental owners have seen a decline in profits and increased competition for bookings. Furthermore, short-term rental platforms such as Airbnb, VRBO, and others make it easier for people to find and book vacation rentals, reducing the need for vacation rentals to be owned by owners. Lastly, increased local governments are enforcing new short-term rental regulations, such as increasing taxes and enforcing tighter regulations.
As a result of these factors, the appeal of short-term vacation rentals has declined. Buyers are now more likely to consider buying a primary home, as this is a more secure investment. However, there are still some buyers who may be interested in purchasing a short-term vacation rental, such as those who plan to use it frequently or who believe that the market will rebound in the future.
In this blog post, we will discuss the factors that have led to the decline in the appeal of short-term vacation rentals for buyers. Additionally, we will provide some tips for buyers considering purchasing a short-term vacation rental.
There are a number of reasons why short-term vacation rentals are no longer as attractive to buyers.
Interest rates
First, interest rates have risen sharply in recent months, making it more expensive to finance a second home. The average interest rate for a 30-year fixed-rate mortgage is now over 5%, up from around 3% just a few years ago. This increase in interest rates makes it more expensive to borrow money to buy a short-term vacation rental, which can reduce the potential profits from the investment.
Supply of vacation rentals
Second, the supply of vacation rentals has increased, as more people have decided to rent out their homes on a short-term basis. This increase in supply has led to increased competition for bookings and lower profits for vacation rental owners. In some popular vacation destinations, there are now more short-term vacation rentals available than there are tourists to fill them. This has made it difficult for vacation rental owners to keep their properties booked and has led to lower profits.
Rise of Airbnb
The rise of Airbnb and other short-term rental platforms has made it easier for people to find and book vacation rentals. It has decreased the need for buyers to own vacation rentals, as they can now find accommodations easily when they need them. People can rent out their homes on a short-term basis thanks to Airbnb and other platforms that help them manage their properties without having to worry about managing them themselves. As a result, people are more likely to get into short-term vacation rental businesses, and the number of available rentals has increased.
As a result of these factors, the appeal of short-term vacation rentals has declined. Buyers are now more likely to consider buying a primary home, as this is a more secure investment. However, there are still some buyers who may be interested in purchasing a short-term vacation rental, such as those who plan to use it frequently or who believe that the market will rebound in the future.
Regulations governing short-term vacation rentals
Short-term vacation rentals are subject to a variety of regulations, which can vary from city to city and state to state. Some common regulations include:
â—ŹLicensing and permitting requirements: Many cities and counties require short-term vacation rentals to be licensed and permitted. This can involve a fee and an inspection of the property.
â—ŹTaxes and fees: Short-term vacation rentals may be subject to a variety of taxes and fees, including occupancy taxes, hotel taxes, and business taxes.
â—ŹZoning restrictions: Short-term vacation rentals may be prohibited in certain zoning districts, such as residential neighborhoods.
â—ŹNoise and parking restrictions: Short-term vacation rentals may be subject to noise and parking restrictions, in order to minimize the impact on neighbors.
â—ŹSafety and liability requirements: Short-term vacation rentals may be subject to safety and liability requirements, such as the need to have smoke detectors and fire extinguishers.
â—ŹStrict Owner requirements: Locally in Montgomery County Maryland, the property being short-term leased must be the owner's primary residence. This basically means that you cannot short-term lease investment property for short-term rentals if renting out on a short-term basis for more than 90 calendar days in a year. If the property owner or applicant is physically present and occupies the residence during the rental stay, there is no limitation on the number of days the property can be used on a short-term residential rental.
For a complete list of Montgomery County requirements, see the link below:
https://www.montgomerycountymd.gov/COUNCIL/Resources/Files/zta/2017/20171010_18-30.pdf
It is important to be aware of the regulations that apply to short-term vacation rentals in the area where you are considering purchasing a property. Failure to comply with the regulations can result in fines and other penalties.
Here are some tips for staying compliant with short-term vacation rental regulations:
â—ŹCheck with your local government: The first step is to check with your local government to find out what regulations apply to short-term vacation rentals in your area. You can usually find this information on the website of your city or county government.
â—ŹRead the fine print: Once you know what regulations apply, be sure to read the fine print. This includes reading the terms and conditions of any licenses or permits that you are required to obtain.
â—ŹStay up-to-date: Regulations can change, so it is important to stay up-to-date on the latest requirements. You can usually find this information on the website of your city or county government.
â—ŹGet professional advice: If you are unsure about the regulations that apply to short-term vacation rentals, it is a good idea to get professional advice from an attorney or a real estate agent who specializes in short-term rentals.
Tips for buyers considering purchasing a short-term vacation rental
If you are considering purchasing a short-term vacation rental, there are a few things you should keep in mind:
â—ŹDo your research. Before you buy a short-term vacation rental, it is important to do your research and understand the market. This includes understanding the demand for vacation rentals in the area, the competition from other short-term rental properties, and the costs associated with owning and operating a short-term rental.
â—ŹConsider your goals. Before you buy a short-term vacation rental, it is important to consider your goals. Are you looking for an investment property? Or are you looking for a place to stay when you vacation? If you are looking for an investment property, you will need to make sure that the property is in a desirable location and that the demand for vacation rentals is high. If you are looking for a place to stay when you vacation, you will need to make sure that the property is close to the activities and attractions that you are interested in.
Get professional advice. If you are serious about purchasing a short-term vacation rental, it is a good idea to get professional advice from a real estate agent who specializes in short-term rentals. A real estate agent can help you find the right property, negotiate the best price, and manage the property once you own it
