My Airbnb is at risk of being shut down by the local government

[Brad Sicoli]

I was inspired by house hacking the spring of 2017 and made it my mission to live for free.  the problem was that in Denver duplexes are way too expensive to make a traditional house hack a good idea.  I had a really good job paying really good money so I was not about to leave Denver.  I had to get creative if I was going to house hack

I bought a house zoned R-1-C in august 2017 and promptly turned it into an airbnb.  I got creative by installing an exterior door in the right place to essentially turn it into a duplex: airbnb in the main house thru the front door and a simple mother-in-law apartment where I lived entering thru the side door. In addition, there was a carriage house in the back with tenants already in place!  Technically, it was a large detached garage that the previous owner turned into a studio apartment, probably, nay definitely, without consulting the city of Englewood.  It had a kitchen, bathroom, shower and a living room with a lofted space for a bed.  real handy!

I knew that the city of denver and all suburbs i was aware of had anti-airbnb laws. However i also knew that airbnbs were everywhere in denver. I concluded that airbnb's were one of those things where it wasn't really enforced as long as you weren't causing any problems. I would live on site and stop any problems if they got out of control.  As far as the carriage house, the previous owner had been renting that out for several years so I figured it would be fine to continue that.  

It's been great!  My revenue has been $4k-$6k per month and my mortgage is $3k.  after expenses, maintenance and cap ex I'm clearing about $1k per month on a property that is appreciating and on a mortgage that is shrinking.  I did the impossible: house hack in Denver!

I got a promotion at work and just recently moved to Washington state.  I am letting 2 of my former employees live in the mother in law and carriage house for way below market rent as long as they manage the property.  4 months in and they are doing great!

Well, I was doing great until yesterday.  My new property manager informed me that the city of Englewood sent me a notice of violation.  The letter states that on 8-31 the community development department was notified that a short term rental was advertised on airbnb at my address.  It says they have received complaints about excess noise, vehicles and trash.  I have a long driveway and guests can park up to 4 cars there.  in august the trash company forgot to pick up our trash so the next week they had to pick up double the trash.  the only noise complaint we've had was in july when a guest left their dog outside after 9pm and the dog was barking.  my neighbors called the cops instead of calling me or my managers.  the dog was promptly brought back inside.

The letter also says that they think I'm renting the carriage house on airbnb and that they will need to do an investigation on construction and building codes.  

The letter concludes by saying I have a chance to "remediate the problem" by calling or emailing some local government guy.  I called him today and left a message.  I doubt he'll call me back.

I know I have nosy neighbors.  I informed my neighbors of the house's intended use when i moved in.  They didn't like it and they didn't like that the old garage was a rental.  i assured them that if there are any issues i will shut it down immediately and indeed i have kept my word.  I have the biggest, nicest house on the block and the previous owners also did not get along with the neighbors.  People can be vicious and it's not ok for them to ruin this beautiful thing I have created!  

My question is what do I do now?  I have a system in place on a property that is profitable and appreciating.  I don't want to sell.  I've poured about $40k into improvements and repairs (new doors, windows, 1800 sq ft of lvt flooring, new roof, and 2 full bathroom remodels.  oh, and lots and lots of paint) and I should get my repair cost back by the end of 2020.  Meanwhile the house has naturally appreciated about 50k not counting my improvements.  Maybe selling is a good idea.

Should I rent it out as a traditional rental?  A professional pm toured my property in march and told me if I ever did a traditional rental the main house would be about $3k per month.  I'd need to up my managers' rents if I want it to be cash flow positive.

How serious is this local government?  Will they fine me or tax me?  If so how much?  Should i simply unlist on airbnb and only list on other websites? In parts of Englewood there is a lot of crime; why am I the focus of the local authorities?  answer: nosy neighbors.  Seriously, is this just a sternly worded letter that won't go anywhere?

What should I do?  What have other str investors experienced?  I'm open to any ideas.