Raleigh Homestays. Can it backfire?

Question

As the rules are today, I would say there are zero (0) "investors" running Airbnb in Raleigh. The ordinance requires that a "full-time homestay operator must live at the premises and must also be present for the entire time a homestay lodger is on property." This model doesn't scale at all as an owner/operator. However, it appears you can 'hire' an operator and require that your tenant/operator stay on site and allow BNB guests to co-occupy on your behalf. The 'hire', of course, could be your long(er) term tenant. The Owner's Affidavit form is required for each property you place in Airbnb/Homestay service and each designated person (your tenant) can have a maximum of one (1) associated residence (your leased property.)

So as I see it, the opportunity for residential property owners who are subject to the Raleigh ordinance is this: place in your leases an addendum that allows your tenants to offer homestay rentals for whatever consideration you believe is appropriate. A 50/50 revenue share, or something along those lines, would be my first guess as a 'reasonable' suggestion. Personally I would not provide this in a lease until verifying that hazard insurance clauses wouldn't be violated, and even then this may not be an opportunity worth pursuing for many properties, like Section 8 property where the HAP contract (specifically Part C,3.d.) explicitly prohibits this kind of activity. I'd also run this by an attorney before implementing. Note, I am not advocating that you do this because there may be hidden issues that impact you that I am not aware of.

Unless I am missing something, I think this ordinance will not achieve the kind of results the authors intended. Let me know if I've overlooked something.

Payton Chung · Answer

Just to close the loop on this, city council adopted a new ordinance last week, 7-1. Short term rentals are officially legal, whether the owner is on-site or off-site. Read more:

http://go.boarddocs.com/nc/ral...

Payton Chung · Answer

Raleigh council business has been slowed (as has short term rental business!) but here's the February discussion draft from the council committee discussing STRs:

https://go.boarddocs.com/nc/raleigh/Board.nsf/files/BLRUQW7D39A6/$file/20200218ShortTermRentalORD.pdf

Payton Chung · Answer

It was at the new council's first meeting on December 3. From the minutes, which were adopted today, page 39:

"SHORT-TERM RENTALS – ENFORCEMENT PAUSED... Mayor Baldwin moved to place a hold on short-term rental enforcement, which was supposed to begin January 1, 2020... Mayor Baldwin ruled the motion adopted on an 8-0 vote. City Attorney Tatum Currin clarified the stay on enforcement would be in effect until the new rules were in place."

https://go.boarddocs.com/nc/raleigh/Board.nsf/files/BKFSDB672831/$file/20200107CCO20191203RegularSessionMinutes.pdf

Chris Martin · Answer

Thanks for the update.

This iteration has removed the requirement of owner/operator and co-residency, which is a pretty big deal for someone (not me, though) 'in the business' of short term rentals. As I pointed out in this other BP topic, Short-term rental laws (AirBnb/VRBO) in Raleigh, I think the HomeStays ordinance conflicts with NCGS 160A-424. The Raleigh ordinance, per the link from Payton, says in Section 5. "All laws and clauses of laws in conflict herewith are repealed to the extent of such conflict." I'm not sure how they repeal state law.

I think this will be something that will end up in court at some point, where higher powers (people in robes) will decide if the city has overstepped its NCGS 160A-175 authority.

Payton Chung · Answer

Also not a raleighnc.gov website, but here's RTN video of the council meeting in question. It's less than a minute, starting at 1:23:47:

https://raleigh.granicus.com/MediaPlayer.php?view_id=24&clip_id=6371

Chris Martin · Answer

Code enforcement can't enforce until the registration system is up. Seems to me the ordinance is still in place, just the enforcement is delayed for a meeting.

I guess time will tell if or how this system will work.

Chris Martin · Answer

Agree 100%. It's not a business I am in or want to be in.

Over time (and not necessarily in Raleigh) I think there will be more tenants getting into this, not homeowners. When they realize they can cut their rent payments significantly if they have a means to monetize their rented property, they will.  Time will tell if this becomes a trend for tenants. Correct me if it already is.

I find it interesting that in Raleigh where you need a permit for about everything except replacing a light bulb(*), there are no methods to identify "Residential Homestays" (or similar words) applications or permits. I walked through every line item  in the Online Portal and couldn't find anything that matched. Maybe they have a different system, though, like the Raleigh Rental Registration system that was independent from the 'regular' permit search system.  I find this regulation, as I've posted before, against the intentions of the state legislature that outlawed cities from creating rental permits/registrations.

(*) Changing a light bulb in an outdoor sign may require a permit. I didn't look through the 28,875 sign permits or the hundreds of pages of regulations regarding signs in Raleigh.

Chris Martin · Answer

Can you provide a link, a Raleigh city website link, showing this development that you claim?

The city manager's report from 12/16/2019 shows no hint that Homestays regulations are "in hold" as you say. Quite the contrary, the forms for registering are still there, as are the Owner's Affidavit and the Homestays program text. I see no indication that the Ordinance was rescinded. The (illegal) Raleigh Rental Dwelling Registration, on the other hand, was eliminated by SB 326 a few years back, as detailed on Raleigh's web site... but that's old news.

Jiri B. · Answer

Great info @Chris Martin! I personally don't see B&B as a good real estate / passive income investment. More of a homeowner making extra $$ on one or two extra rooms they might have. Its seems more of an active investment and not very easy scalable. If you can get 8beds property, let your tenant live there for free in exchange for renting the rest of the rooms and managing all that, i could see this being able to scale better and possible a business model. But with BNB and most states / cities cracking on that, I would not assume this might work in 10 years from now.

Payton Chung · Answer

Anyone interested in this topic should weigh in on Raleigh's proposed new ordinance. You can review the proposal and provide feedback (by July 28) at this link:

https://publicinput.com/9797/

Raleigh Homestays. Can it backfire?

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