2023 Oregon Coast Vacation Rental Permit Rules, Summary & 2024 Regulations Forecast

[AJ Wong]

As we approach a seasonally slower period for investors and real estate professionals, I thought I'd share some insight into the Oregon Coast Vacation Rental Market; permitting, performance and what to look out for in the coming year. 

I've shared extensively about how I arrived on the Oregon Coast (like many, as a transplant from elsewhere) but specifically to own and operate a vacation rental portfolio. Since 2018 (when there were almost NONE) the rules and regulations required to get a permit have gradually increased, and therefore the areas and properties that are eligible have correspondingly shrunk dramatically. Each year, it gets more difficult to identify, acquire and launch a permitted vacation rental and 2024 is looking like the toughest challenge yet. 

There are the obvious hurdles to real estate investing at present: low inventory, high demand and high rates and prices. Then there are the not so obvious hurdles that are specific to vacation rental ownership and operation, primarily, familiarity with local rules, jurisdictions and regulations. A great support team (real estate professional, mortgage guy/gal, title representative and management) are essential to execution and are a suggested place to begin if you're thinking about setting up a short term rental shop (or investing in general.)

That meme keeps coming to mind..the one that says, "Is it worth it?...If you're strong enough!" That's been this year's real estate theme, especially when it came to helping clients obtain eligible and worthwhile vacation rentals on the Oregon Coast this past twelve months. 

Since January of this year, our team has assisted seven clients obtain Oregon Coast vacation rental eligible properties ranging in value from $575k-$1.5M All have live and active vacation rentals, the majority have performed above and beyond our initial projections and Pro Forma's. 

The results are a combination of years of intimacy with the Coastal Markets and even personal relationships within the regulatory authorities, but also of the determination and perseverance of the investors/buyers. For the seven or so we closed, there were dozens of offers written. Vacation Rental eligible homes are the highest demand properties on the Oregon Coast. I keep an updated spreadsheet of all the existing and eligible STR's on the Oregon Coast and permitted or permittable properties are proportionately much more active than non-eligible comps.

So what changed in 2023 and what's on forecast for 2024?

In 2023 we saw several municipalities pause or change their regulations here is a brief summary of some popular OR Coast STR areas:

- Gold Beach - Essentially paused within city limits. There are some 'loop holes' within the county that can still obtain a permit. 

- Port Orford - Currently paused. Even permitted properties will have difficulty securing a new permit. 

- Bandon - Within city limits properties need to be within a particular VRD zone and meet a saturation rate (no more than a certain percentage of neighboring properties an be existing STR's. There are a couple active listings that meet these two requirements. There are some exceptions mainly properties outside of city limits and within the county could qualify according to county rules. This comes with an extended timeline to permit and separate requirements related to septic capacity when applicable.

- Florence - For now, there are limited restrictions to an STR permit, mainly a business license. Several very successful and operating sales and client properties here for reference.

- Newport/Waldport - Essentially still a no go unless commercially zoned. 

- Lincoln City - Big revision to rules this year. For eligible properties, there is a waitlist with a reliable timeline. There are several communities that are zoned outright for STR and one with a revision for 2024 that through attrition will drastically reduce the amount of permitted properties in the immediate area. There are several active listings that can retain their active permits until the new rules take effect.

- Rockaway Beach - As of now, most areas are still open for a reliable STR permit. Finding a desirable rental property here can be a bit challenging.

- Nehalem - Generally subject to a waitlist, unless existing permit in place* 

- Pacific City - For a few more months, existing permits can transfer and properties on the very west side can qualify provided they meet a saturation or density test of neighboring properties usages. Some excellent off market oceanfront options available for purchase. 

One element that has been critical to making the investment returns of even top notch short term rentals attractive has been loan and lender structuring. Due to the high levels of competition and the aforementioned market influences, lender options have made the difference in several of the transactions, both in regards to the acquisition options and investment feasibility. 

For example; two luxury STR sales involved specific lender programs that offered just 10-15% down on loans of $1M+. A strong Oregon Coast vacation rental can generate 10%+ in gross annual income of the valuation! So with $150K down one client should generate $150k+ in gross income. (There was even a recent oceanfront listing at $2.5M that generated over $300k in gross income the past two years!?) Another client went to his private bank and obtained absurd terms (by today's standards) their final mortgage interest rate began with a 5%, within the past 60 days..Another closed on a 'non-financeable' six-plex with my local credit union with 25% down.

Cultivating reliable lender relationships is vital to successful real estate investing and for any real estate broker or agent to execute effectively, but especially when it comes to qualifying for and having a competitive offer for short term rental prospects. 

I have the unique perspective of having began my real estate journey as a mortgage banker in 2004. For 2024 I'm awaiting activation of my NMLS mortgage broker license and although I don't intend to represent both the real estate or mortgage side in any one transaction, having access to live pricing matrices, evolving guidelines and deeper lender relationship cultivation will undoubtably add value to client interests and rental investments. 

In summary, Coastal OR STR acquisition will have increasing barriers to entry and assumedly more value for active owner operators. There is minimal new construction planned for the Oregon Coast, and many areas restrict immediate usage of the property as a vacation rental for a specific duration, usually 2-3 years. In general, existing rentals remain unaffected by new rules, with the exception of valuation and transferability upon sale to a new owner.

As in many more mature markets, owning an operational STR on the Oregon Coast is a moving and shrinking investment target but still within reach for even rookie investors in 2024 provided they have good local transactional support and patience. The biggest anticipated buyer hurdle on the horizon is a significant drop in mortgage rates that would force a flood of sidelined demand to come into play.

What are you seeing in your local STR rules and regulations?