Are STRs as we know them dead in Colorado (and other places)?

[James Carlson]

A bit of a rant here ... I've been in these forums for seven years and have followed the Airbnb laws in Colorado the entire time. I've always been able to find my STR clients investments that are legal and whose numbers works. Even new laws restricting short-term rentals seemed only to present new opportunities to savvy investors who knew how to find the gaps.

But the last year here, I've started to wonder if Airbnb and short-term rentals as I've known them are dead in Colorado. 

It seems that a mix of regulation on the legal side and taxation on the numbers side have changed the landscape. Anyone out there feeling this?

Airbnb laws

On the laws side, the noose feels like it's tightening. 

-- Much of Denver metro has outlawed it. (I know there are exceptions in Wheat Ridge, Westminster, Adams County, etc. I still have clients crushing it there.) 

-- Ski towns like Breckenridge and Steamboat Springs have essentially banned it. 

-- Unincorporated counties -- historically, the more conservative, skeptical-of-regulation type of government bodies -- have clamped down. Routt County, where Steamboat is, bans STRs. Clear Creek County and Gilpin County have caps and are past those caps, as is Summit County. Jefferson County, which technically allows short-term rentals, is fickle with permits and just revoked one of my clients' permits for arbitrary reasons.

-- The biggest indicator of turning public sentiment was just last month, in December, when voters in Woodland Park approved a ban on vacation rentals that also appears to NOT grandfather in existing licensed properties. I've never seen a new STR law that didn't grandfather in existing permitted short-term rentals. (Littleton and Colorado Springs, for instance, initially had laws allowing Airbnb and then revoked those laws but grandfathered in existing permits.) And Woodland Park is not known as a big liberal city.

Numbers side

And then there are the numbers, which just aren't as good as they were.

-- The influx of STR supply has certainly brought down Airbnb revenues the last few years for everyone. That dynamic will balance out this year, it appears, but still the gold rush of a few years ago is definitely over.

-- But the real nail in the coffin could come in the Colorado legislature which is considering reclassifying STRs as commercial property for property tax purposes. (Senate Bill 33, for those keeping score.) I just ran numbers for a client on a $550,000 property. Under current law, annual property taxes would be $2,300. If this new bill passes, their bill would jump to $9,800/year. 

So, what does this all mean?

The state law on property taxes is the biggie here. If it passes, I think the motivations to buy a vacation rental in Colorado will change from mostly investment to mostly personal. There will always be people with money who want a second home in Colorado who are fine as long as their mortgage is covered. But maybe the days of nabbing a killer STR investment are coming to a close.

If the property taxes are not changed, then you still have to deal with a shrinking pool of areas that allow STRs. But I think savvy investors will be able to navigate those laws to take advantage of artificially suppressed competition to do well. 

What are others feeling out there?

[Karen Faulkner]

Wondering what you would recommend as a better investment than STR or is STR still a viable investment? I am in North Georgia and looking for my next investment property and I see how challenging it is to make the numbers work. One big challenge is coming up with the down payment in the first place and waiting for the revenue to ramp up after also investing in great design and marketing. I have been taking a course in it through build short term rental wealth /Bill Faeth and have heard some great success stories and would love to be one of them. But I also feel like I need to be more cautious than 2021 when I bought my first STR property. would love to connect with some of you and hear more detail about what you are doing these days in real estate. Thanks so much!

[Mike Anderson]

Quote from @Karen Faulkner:

Wondering what you would recommend as a better investment than STR or is STR still a viable investment? I am in North Georgia and looking for my next investment property and I see how challenging it is to make the numbers work. One big challenge is coming up with the down payment in the first place and waiting for the revenue to ramp up after also investing in great design and marketing. I have been taking a course in it through build short term rental wealth /Bill Faeth and have heard some great success stories and would love to be one of them. But I also feel like I need to be more cautious than 2021 when I bought my first STR property. would love to connect with some of you and hear more detail about what you are doing these days in real estate. Thanks so much!

 I'm in North GA too.. I'm looking but most things don't pencil out. Blue Ridge is a complete mess at this point. Other areas are good but prices are slowly and steadily coming down and inventory is building. It's honestly an interesting time because of everything that has happened with rates, and covid, and lockdowns and such no real history to look back on. I think it's a good time to stack cash and just wait for an opportunity. The county I live in put some new STR regulations in place. There are many people that FOMO bought in the last 18 months and are desperately trying to get out now at decent losses. There are also some that are making money or breaking even. If your goal is to buy strictly for investment its not bad to stack cash. Heck i made 24% in an S&P index last year, not terrible especially considering there are no guest calls that go with that!!

[James Carlson]

@Karen Faulkner

What is best for you depends on so many factors. How long is your timeline? Do you need cash flow to build more capital for the next property? Do you value time or money? (Hands-off or hands-on.)

I like STRs as a way to make money while you wait for a property to gain value, but at least for us, cash flow is simply the icing. It's not the cake. As an example, average year-over-year appreciation in Denver and Colorado Springs where we own properties is between 4-6% over the last 40 years (even accounting for two big dips). So even on our small Denver condo, worth $300k right now, if we hold that for 15 years, that thing should be worth $535k. That's $235k in appreciation. We'd have to cash-flow $1,300/mo over that period to make that much, which isn't happening.

This is all to say that if you are in a market that has good long-term appreciation potential, then whatever rental model you choose is simply a way to make a little money while you hold the property for larger long-term gains.

I'll let others chime in on your specific area. Sounds like you've got a good start with one STR. Keep going. Buy something else. Rent it. Hold it for the long-term. You'll do great.

[Bryan Keller]

It's not dead in Vail. People charge here thousands for one nights. You only need millions to invest tho lol

[Matthew Crivelli]

Personally, I'm not a fan of Air B & B. The last time I stayed in one, I was charged a large cleaning fee and then met with a list of what to clean prior to us leaving. This alone really turned me off, we stay in hotels now and I have gotten similar feed back from other friends and family members.

This clearly has nothing to do with laws, regulations or operating numbers but I do think it plays a large role in the decline of the market. Too expensive. Too many rules. I have to clean your house? No thanks!  

[Andrew Steffens]

That is why Florida is great - state has handcuffed municipalities from changing existing laws or enacting new laws regarding STR's essentially freezing new legislation. Not sure I would invest in places without such protections as I see this on BP in a lot of places (i.e. Nashville, Dallas, etc etc)

[James Carlson]

Quote from @Bryan Keller:

It's not dead in Vail. People charge here thousands for one nights. You only need millions to invest tho lol

Yeah, I you're being somewhat facetious, but I think you've hit on a flipside of this whole thread, which is that anyone who has an existing STR in Colorado may be golden. If the supply of Airbnb vacation rentals is artificially suppressed by regulation then those that remain may very well thrive. (Pending the outcome of the state bill on property taxation of STRs.)

Also, how long have you owned? I've been looking in the Vail/Edwards area for a short-term rental for some clients, and the numbers don't come close to penciling out.

[James Carlson]

Quote from @Matthew Crivelli:

Personally, I'm not a fan of Air B & B. The last time I stayed in one, I was charged a large cleaning fee and then met with a list of what to clean prior to us leaving. This alone really turned me off, we stay in hotels now and I have gotten similar feed back from other friends and family members.

This clearly has nothing to do with laws, regulations or operating numbers but I do think it plays a large role in the decline of the market. Too expensive. Too many rules. I have to clean your house? No thanks!  

 You're not alone. Brian Chesky, Airbnb CEO, has talked about people's frustration with fees. (The app now has a toggle button that allows users to see the total cost before taxes.

I think the hotel and vacation experiences are just two different things. If I'm staying one night somewhere, a quick business trip or something into Denver to show clients homes, a hotel is my choice. Easy check-in, check-out, no frills, I'm going to eat out anyway. 

But if I'm going somewhere with my wife for any length of time, I like the space afforded us by a vacation rental, the kitchen for cooking, a living room for spreading out. That's doubly so for traveling with a group. Having a big house with our own bedrooms but a shared living space to gather late at night, that's something a hotel just can't provide.

And here in Colorado, there's no such thing as a motel in the thick of the woods. STRs offer an experience that can't be replicated.

[James Carlson]

Quote from @Andrew Steffens:

That is why Florida is great - state has handcuffed municipalities from changing existing laws or enacting new laws regarding STR's essentially freezing new legislation. Not sure I would invest in places without such protections as I see this on BP in a lot of places (i.e. Nashville, Dallas, etc etc)

Yeah, I know states like Florida and Arizona have prohibited local municipalities from restricting non-owner occupied STRs. That is comforting, if I'm an investor.

I still feel good about investing in Colorado locations if the area has a law on the books actively allowing Airbnb. (I distinguish this from towns where you can do Airbnb but only because there's no law whatsoever.) If a city or county has a law allowing for non-owner occupied short-term rentals, and then revokes that and doesn't grandfather in existing listings, they're going to have a lawsuit on their hands. There are already two lawsuits by Breckenridge and Summit County Airbnb owners here in Colorado. And a similar lawsuit by an STR owner in Austin was successful. 

And in this way, the state of Florida is no different, right? They're a state that has said "Have at it with your STR" just like many cities in Colorado have (or had) done, but Florida could change that, too. At a certain point, you've got to make a decision based on the legislation before you.

[Andrew Steffens]

Quote from @James Carlson:

Quote from @Andrew Steffens:

That is why Florida is great - state has handcuffed municipalities from changing existing laws or enacting new laws regarding STR's essentially freezing new legislation. Not sure I would invest in places without such protections as I see this on BP in a lot of places (i.e. Nashville, Dallas, etc etc)

Yeah, I know states like Florida and Arizona have prohibited local municipalities from restricting non-owner occupied STRs. That is comforting, if I'm an investor.

I still feel good about investing in Colorado locations if the area has a law on the books actively allowing Airbnb. (I distinguish this from towns where you can do Airbnb but only because there's no law whatsoever.) If a city or county has a law allowing for non-owner occupied short-term rentals, and then revokes that and doesn't grandfather in existing listings, they're going to have a lawsuit on their hands. There are already two lawsuits by Breckenridge and Summit County Airbnb owners here in Colorado. And a similar lawsuit by an STR owner in Austin was successful. 

And in this way, the state of Florida is no different, right? They're a state that has said "Have at it with your STR" just like many cities in Colorado have (or had) done, but Florida could change that, too. At a certain point, you've got to make a decision based on the legislation before you.

 True, things could change but it would take a majority of the legislature in both chambers and the governor to sign it.  If they did it would likely go back to letting the cities do whatever they want to do, and those legislatures would have their process, so it is difficult and takes a lot of time.  The state legislature is only session a few weeks per year, and luckily they usually have more important things to do!

[V.G Jason]

It's why we bought a second home in the Rockies, we want the STR regulation. They're listening to the people actually buying the house and enjoying the area. We don't want neighbors we don't know. I don't know any excellent neighborhood in America that genuinely likes renters in their neighborhoods. That's why I invest in those in areas I don't live and buy in those I do want to live in.

[James Carlson]

@V.G Jason

I think for the right buyer, the fact that Colorado is clamping down can be a good thing. Some of our clients wanting a second home don't like the idea of renting it out. For them, it's truly the old-school idea of a second home. 

And you're totally right, housing issues cut across political and other lines. It seems all kinds of people don't like Airbnb and don't like renters. We don't love the piling on of renters, and yet ... we love our neighborhood in Colorado Springs precisely because everyone's been there for years and knows each other, and there is a sense of community.

I've always been a half-assed Airbnb specialist realtor. My former journalist self enjoys digging into Colorado laws and counseling my clients on where they can do short-term rentals and under what circumstances. But I've also never joined any STR advocacy groups, which all seem to think Airbnb properties are God's gift and should never under any circumstances be restricted. I don't know if that makes me nuanced or a hypocrite.

[Cliff Benner]

Quote from @James Carlson:

Quote from @Andrew Steffens:

That is why Florida is great - state has handcuffed municipalities from changing existing laws or enacting new laws regarding STR's essentially freezing new legislation. Not sure I would invest in places without such protections as I see this on BP in a lot of places (i.e. Nashville, Dallas, etc etc)

Yeah, I know states like Florida and Arizona have prohibited local municipalities from restricting non-owner occupied STRs. That is comforting, if I'm an investor.

I still feel good about investing in Colorado locations if the area has a law on the books actively allowing Airbnb. (I distinguish this from towns where you can do Airbnb but only because there's no law whatsoever.) If a city or county has a law allowing for non-owner occupied short-term rentals, and then revokes that and doesn't grandfather in existing listings, they're going to have a lawsuit on their hands. There are already two lawsuits by Breckenridge and Summit County Airbnb owners here in Colorado. And a similar lawsuit by an STR owner in Austin was successful. 

And in this way, the state of Florida is no different, right? They're a state that has said "Have at it with your STR" just like many cities in Colorado have (or had) done, but Florida could change that, too. At a certain point, you've got to make a decision based on the legislation before you.

 @James Carlson what cities or counties are you seeing, in the more mountainous areas of CO an hour outside of Denver, that still allow STRs if you live on the land the cabin is on?

[Jeremy Holden]

STR's are alive and well down in Metro Phoenix, Arizona - speaking first hand as an agent, investor and STR owner. If anything, we are seeing unprofessional operators get weeded out by the laws and competition. Its a competitive space. If you dont buy right, youll have issues. If you dont operate with professionalism, youll have issues. It's very easy for us to lose sight of these truths and blame performance on over-saturation and legislation. Those of us tho buy right and operate professionally are doing just fine.

[Bruce Lynn]

Interesting as there were a couple of posts a year ago after the widely distributed article in the media essentially calling it a STR crash. From what I remember it was focused on Smokey Mountains. Probably one of the most popular posts ever on BP. Except almost everyone seemed to think the guy was crazy. His stats could be right...no way every wasn't making $5000-$10,000 a month. People were so quick to say he was way off base. While you don't exactly validate his claim..sounds like for many it might be moving that way.

Is there any city that could make it a competitive advantage? Rename their city STR....somehow embrace it and invite the world to amenity house central. Hot tub heaven. Back porch paradise. Fire pit free for all. Seriously Disney for STR.

Also all these regulations in CO surprise me.   Reading thru Vail Resorts annual report the other day and looks like they loose money.  So I am sure they don't want pesky DTR operators stealing their bed and food and alcohol revenue. Guessing the have a strong lobby...in more ways than one.

[Tony C.]

I surely hope not. That sucks 

[Marcus R.]

Great thread James! Been following the legislation closely. 

Recently I've been living next to an illegal and poorly run STR operation and I can now better empathize with folks who strongly oppose them. It does create problems when you have inexperienced home and business owners in operation and renting to inexperienced homeowners (this STR caters to young travelers coming to the city). This past weekend, the guests tripped the circuit breaker and neither the guest, host, or co-host knew how to locate and reset the breaker. I ended up helping them out since it was turning into a big ordeal. Some operators really need better training and education and drag down the great operators who are doing it right and offer a great service and product. Better education and training might be one way to improve the situation

[James Carlson]

Quote from @Cliff Benner:

 @James Carlson what cities or counties are you seeing, in the more mountainous areas of CO an hour outside of Denver, that still allow STRs if you live on the land the cabin is on?

It sounds like you're talking about living in one home and renting another structure that's on the same land? Or are you talking about just owning a home or there that you consider your primary residence and that you STR rent when you're not there? Either way, I think that falls under most county's definitions of primary residences.

Clear Creek, west of Denver, and Gilpin County, northwest of Denver, both have a primary residence STR permit that's not subject to their caps on non-owner occupied Airbnb.

Park County, which includes Bailey, Alma, and Fairplay is open. So is Teller County just west of Colorado Springs. Douglas County may passed something but I haven't read up on it yet. 

Just to band a few. Feel free to reach out if you want to discuss further. 

[James Carlson]

Quote from @Jeremy Holden:

STR's are alive and well down in Metro Phoenix, Arizona .

You're totally right. In 2014, when i was s broke freelance journalist, I rented my basement apartment in Denver on Airbnb. The light in the unit was awful, I had a blood-red fake leather couch, and I took horrible photos with my cell phone. And I still averaged $3,000/mo.

You can't get away with that anymore. You better buy a great place, furnish it well, and take good photographs, not to mention iterate it with professionalism. This who don't fail quickly. 

[James Carlson]

Quote from @Marcus R.:

Great thread James! Been following the legislation closely. 

Recently I've been living next to an illegal and poorly run STR operation and I can now better empathize with folks who strongly oppose them. It does create problems when you have inexperienced home and business owners in operation and renting to inexperienced homeowners (this STR caters to young travelers coming to the city). This past weekend, the guests tripped the circuit breaker and neither the guest, host, or co-host knew how to locate and reset the breaker. I ended up helping them out since it was turning into a big ordeal. Some operators really need better training and education and drag down the great operators who are doing it right and offer a great service and product. Better education and training might be one way to improve the situation

 Damn, sorry to hear that. I've never understood those that can't understand the critics of STRs. Are the horror stories overblown? Yes. But there are also plenty of people who like having community where they live and a home of rising tourists isn't that, no matter what veneer slathered on it by Airbnb. 

I don't like all-out bans, but I wish there was an easier way for cities to quickly rid the platform of bad actors. 

Also, who doesn't know how to flip a breaker? I'm not handy, but I know that. 

[John Patterson]

@James Carlson Old is the new , again.

Strs are short term cash cows.

Ltrs will always be around barring hoas. If politicians have them , you’re usually ok , too.

Ltrs are great because they keep a consistent tax base and particular voter in place.

Just because you can’t make it either way , do like the politicians do. Take the Picassa route.

Have a legal llc tied to five owners.

Its all legal and now you only have to maintain a place for 5 groups.

1) you can get a heavy cash deposit down for the ownership.

2) they pay quarterly for expenses that funds the overhead.

3) everone has a share of profit when you or they decide to sell for a higher price.

You stay In control, but affordability is easier to maintain.

Thoughts…

[Bruce Woodruff]

Quote from @Albert Hasson:

Heightened regulation is going to be a nationwide trend over the next few years.  It will happen in red AND blue states.

Why?

It's simple, people who spend good money on the home of their dreams don't want STR's next door to them. People don't want to share their quiet neighborhoods with renters who don't value peace and quiet and a sense of community.

Two thoughts - 

1) We have seen the Blue areas become much more regulatory, as we would expect from that mindset...but yes, I gotta agree, I think it does cross the line in this case. 

2) Not all neighborhoods resent STRs. 2 of my STRs were in neighborhoods where they were actively welcomed. The neighbors saw the STRs in the neighborhood as a huge upgrade over what had been there (run-down, neglected old houses turned into the best in the area)...

[James Carlson]

Quote from @Bruce Woodruff:

Quote from @Albert Hasson:

Heightened regulation is going to be a nationwide trend over the next few years.  It will happen in red AND blue states.

Why?

It's simple, people who spend good money on the home of their dreams don't want STR's next door to them. People don't want to share their quiet neighborhoods with renters who don't value peace and quiet and a sense of community.

Two thoughts - 

1) We have seen the Blue areas become much more regulatory, as we would expect from that mindset...but yes, I gotta agree, I think it does cross the line in this case. 

2) Not all neighborhoods resent STRs. 2 of my STRs were in neighborhoods where they were actively welcomed. The neighbors saw the STRs in the neighborhood as a huge upgrade over what had been there (run-down, neglected old houses turned into the best in the area)...

Yes, even I think some of these regulations go too far here in Colorado. 

I also agree with No. 2, and I've seen some of my STR clients welcomed by their neighbors after taking over a ramshackle place that wasn't cared for. But the inverse is also true. Not many people are excited to see long-time solid neighbors leave and have them replaced by a short-term rental.

[Bruce Woodruff]

Quote from @James Carlson:

I also agree with No. 2, and I've seen some of my STR clients welcomed by their neighbors after taking over a ramshackle place that wasn't cared for. But the inverse is also true. Not many people are excited to see long-time solid neighbors leave and have them replaced by a short-term rental. 

Usually yes. But in my case it was an older downtown neighborhood in Prescott AZ, that had been run down pretty bad and was just starting to swing back. The first 'really nice' homes in the area were the STRs. The neighbors loved it of course. This would not be the case everywhere obviously....

[Bruce Woodruff]

Quote from @James Carlson:

And here in Colorado, there's no such thing as a motel in the thick of the woods. STRs offer an experience that can't be replicated.

And this is exactly why vacation rentals will always be around. Plus the fact that hotels can not offer a separate unit/with a full kitchen/a laundry/a back yard/ parking/etc......