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?

[Jim Hudelson]

In my mind, if the senate bill passes, Polis veto's it.  That's not based on what I know just what I think.  Does anybody know where Polis stands on this?  Colorado is pretty dependent on tourism.

[James Carlson]

Quote from @Jim Hudelson:

In my mind, if the senate bill passes, Polis veto's it.  That's not based on what I know just what I think.  Does anybody know where Polis stands on this?  Colorado is pretty dependent on tourism.

 Gov. Polis supports the idea, if not the specifics of the bill. (See this Colorado Sun article, about 3/4 of the way down.) What I hear from various people involved in the STR world in Denver and Colorado Springs is that this bill is likely to pass, but that it's also likely to be amended from its current language.

There are two potential areas of change I hear about:

-- The number of nights rented as a short-term rental that trigger this reclassification. The bill currently says any home that's not a primary residence that's rented for 90 nights or more is subject to commercial property taxation. I suspect that number might be raised. To what, I don't know.

-- There will be some new category of property created between residential and commercial, as @Robin Searle noted. So, Colorado vacation rentals will be taxed at something between the current residential tax rate of 6.7% and the commercial tax rate of 27.9%.