There is allot of talk about nightly rentals and their impact on real estate. One of the most common questions is does a nightly rental increase the value of a particular residential property? I recently looked at a residential property in Denver metro (Jefferson county) where the borrower emphasized she was one of only a handful of select nightly rental licenses. She felt that this increased her property value substantially.
Is this a correct assumption? The borrower in the above case felt her property was worth about 40% more than comparable sales due to her ability to generate more income as a short-term rental. Unfortunately, she was wrong!
Why does a short-term rental have no impact on value? Short-term rentals are handled by most counties/cities as permits. This permit is for the present owner and can be revoked by the county at any time. The ability to rent short term is not a zoning change that transfers with the property. For example, if the property were sold the next homeowner would have to obtain a new permit to rent short term. The county/city may or may not grant a new permit. Many cities (like crested butte) have explicitly stated in their regulations that permits are not transferable and that once a property is transferred it may or may not be allowed to continue as a nightly rental.
Most nightly rentals are unpermitted. In many cities property owners disregard the rules and rent without the appropriate licenses. The Canyon Courier (located in Evergreen, CO in Jefferson county) found over 70 short-term rentals with only three homeowners who had properly gotten a permit. This shows that if you own a property it is relatively easy to start offering nightly rentals. Furthermore, the rental sites have done a good job of concealing the owners so governmental agencies have a hard time cracking down on illegal rentals.
The regulations are changing rapidly. From Denver to the mountains, regulations can change rapidly. For example, Durango banned nightly rentals in many areas and Crested Butte capped the number of nightly rentals. We are just seeing the beginning of increase regulations on nightly rentals. I expect the trend of regulation to continue to increase.
A short-term rental has zero impact on value and should not be factored in when evaluating a property. Regulations can change overnight, and permits are very different than a change in zoning which would provide much greater certainty for future buyers of the property. Don’t buy into the hype that the income from a nightly rental will increase the value of the property.
Sources/Additional Reading
- https://www.aspentimes.com/news/local/city-of-aspen-knocking-on-the-door-of-short-term-rental-scofflaws/
- https://www.aspentimes.com/news/study-use-of-airbnb-other-services-for-short-term-rentals-surging-in-aspen/
- http://www.canyoncourier.com/content/few-short-term-vacation-rentals-evergreen-have-required-permit
- http://www.cpr.org/news/story/most-vacation-rentals-be-banned-denver-after-council-passes-new-rules
- http://denver.cbslocal.com/2016/10/04/residents-upset-over-vrbo-home-in-neighborhood/