Short Term Rentals - Risks of Regulation

[Keith Schulz]

I currently own and operate a short term rental in northern Wisconsin (as well as manage several traditional rentals). I'm curious what others are seeing across the country in terms of city and state regulation of short term rentals? 

My short term rental has far out performed any of my traditional rentals by a long shot (but it's more work to manage). I've considered buying more, but I'm very hesitant because local governments seem very anti vacation rental property. For awhile some counties in Wisconsin had actually outlawed short term rentals on residential properties. In 2017 Wisconsin’s Right to Rent law prevented municipalities from banning short term rentals entirely. However, municipalities are allowed to have some significant restrictions. One of these possible restrictions is requiring a minimum of a 7-night stay, in other words you couldn’t rent your home out for the weekend. Another possible restriction is renting for a maximum of 180 consecutive nights in a year. For example, if you started your short-term rentals in April, you’d need to stop in September. Many of the municipalities that I have checked with (Madison included) follow these two restrictions. These restrictions can turn a great property into a flop, because if you wipe out half the year and eliminate 2-6 night rentals you lose a large portion of your rentals.

Now I see the news in Colorado that the Aspen City Council ordered a stop to new development and short term rental licensing. I've seriously considered buying a rental in places like Aspen, Gatlinburg, Florida, etc. However, it's really scary that the local government could just change their rules and turn your property from a great investment to a terrible one. Even scarier that it's happening in areas where tourism is what drives their economy. 

What are your thoughts, is heavier restriction on vacation rentals a growing trend? What are you seeing in your area? Am I being too cautious? 

[Bruce Woodruff]

Yeah, it completely depends on the state and local area. Arizona does not allow any local municipalities to ban STRs, they can only regulate them. Other states have similar views. So STRs are still a fantastic investment, but just do a lot of research and look into your crystal ball.

Also, some areas that might eventually limit STRs, to some extent, are generally saying that existing STRs will be grandfathered in.....so if you find an 'iffy' area, just get in now....