Investors searching for licensable and permissible properties for STR vacation rental usages can often find the process frustrating and disappointing.
The core of the challenges are the barriers to entry usually centered around licensing and permit-ability of stays of less than 30 nights. Rightly so, jurisdictions have implemented rules and regulations for nightly stays, typically in the form of zoning or CAP's on maximum permissible Vacation Rental dwellings or short-term rentals in a particular city, county or geographical region.
A quick google search of vacation rental properties for sale will yield a litany of 'STR Search Sites' such as AirDNA, Rabbu and Awning. As a STR focused broker I'm signed up for their emails and newsletters and receive daily emails of their 'lucrative' properties with projections and ROI of newly listed properties in desirable STR areas. The problem is that 99% of the 'prospects' for properties listed in Oregon are not nor never will be eligible for vacation rental usages.
I received an email this morning about a reasonably priced property on the Oregon Coast in Bandon and the property has excellent 'projected performance' but Bandon has some of the strictest qualifying criteria on the Coast and the home is not STR eligible. There are homes that can qualify, but none of the aforementioned sites have ever highlighted them.
The step that none of these sites take is the formal qualifying and confirmation that a property can operate or continue to operate as a vacation rental. The reason is that all jurisdictions have different rules - making every property's eligibility highly specific. Even if the home is in the correct 'zone' there could be density or saturation requirements (proportion of active vacation rentals operating in the immediate area) water source restrictions, property type limitations, septic, health or environmental inspections, or parking, landscaping and occupancy rules that can only be verified directly with the municipality responsible for license or permit issuance.
Typically unless outright permitted, the ONLY way for an investor to ensure utilization is for them or their representatives to verify directly with the planning department responsible for issuing permits or licenses for nightly rentals where the specific prospect is located. It's a lot of work , especially if you're searching in different areas, but it's also the most essential. What good is buying a 'hotel' if you can't rent it nightly?
We work with planning departments nearly daily (and certainly weekly) for prime prospective vacation rentals with high yield potential throughout the Oregon Coast. If you're prospective STR market is anything like ours, active or eligible vacation rentals are in incredibly high demand and generally sell very quickly. If we didn't take the time to pre-qualify the property our investors would often miss the opportunity to tour and purchase the property. Why STR Search sites would forward a prospect without first determining the property can be utilized is a failure of their mission and a disservice to serious investors. These sites offer a lot of value in other areas, I use them regularly for comps, performance insight and projections, but I always cross-reference with real property managers and owners on the ground.
The real intention of these websites is similar to Zillow, Realtor dot com and the now nearly extinct..Redfin. They are effectively a middle-man for data between real estate buyers and real estate professionals. They essentially sell leads to the highest bidder. The downside for investors is that they're focused on properties that are not qualified for their intention and for real estate brokers are immediately unable to meet expectations. That's not a knock on the recommended real estate professionals that utilize those leads or services (in fact if they invest in their business to that degree they're likely highly successful) but it is a call-out on sites that exist to serve STR investors and - don't.
I don't blame them. STR investment is hard. They are hard to find, difficult to acquire and even more difficult to own and operate successfully. It takes us daily 'pre-work' to ensure our investors are focused only on properties that can qualify and are aware of them quickly enough to assess and act. The Oregon Coast is a very small market with around 1000+/- SFR for sale at any given time with less than 10% of listings active or eligible for vacation rental usages. So it's 'manageable' but it's our sole and only focus and not scaleable on a national level due to the ever-evolving nature of the marketplace. It can't be digitally optimized..ESPECIALLY with artificial intelligence (more on that non-sense later..)
There are many areas where active rental licenses and permits do not transfer and regulations that change seasonally. Fortunately there are still viable properties to invest in, if you know where and how to look.
Top Tips For STR Investors:
- Research. Research. Research. Know the rules in your area or someone that does.
- Confirm usages and permit-ability before and during your search and closing.
- Planning Department - Usually the city or county planning department is your go-to for all things STR, larger municipalities will have a designated person or contact for VRD,STR processes and procedures.
- Forms and Fees - The above contacts can provide you with the actual application and costs to operate. Treat them like part of the closing and complete them ASAP. Owners might not be able to formally apply until post closing but should be very familiar with the where, when, who and how. Optimally prior to the expiration of their contingencies.
- Bail on a sinking ship - We've sold 20+ luxury AirBnB's throughout the Oregon Coast from Brookings to Astoria and everywhere in between. In only one instance have we had to encourage the investor to cancel due to insufficient confidence and clarity on permissions. The perfect home was located in an area that was unexpectedly re-writing their STR rules and forced the buyer to cancel nearly 80% of the way through the transaction. It took the city nearly a year afterwards to formalize their licensing process and ultimately the property would have qualified but a year of non-performance was un-investable. As painful as it was to walk away from a few thousand dollar investment in appraisals and inspections and the indispensable time and effort, was not nearly as harmful as tens of thousands in operating losses and lost tax-benefits.
- Prepare and Prioritize - If investors really want to take their STR search seriously, my best advice is always to be over-prepared for opportunity to present itself. It WILL present itself, the perfect listing always comes to market but unless their proverbial ducks are in a row the chances for casually landing a lucrative vacation rentals in today's marketplace is low. Get financing in place, get pre-qualified, unbiasedly - get with a professional specialized in vacation rental rules and sales (they will pay for themselves many times over) and have a good understanding of how you will launch and operate your new business in the form of furnishings, management and support.
Ultimately we make sure our investors speak directly with the jurisdiction responsible for permit or license issuance prior or during the contingency period and any capital investment is at risk. Vacation rental markets move quickly, the best way to avoid a rash decision or loss is to be extremely well informed and remain diligent before, during and through closing.
How did you find your STR?
Anthony AJ Wong
Licensed OR Real Estate Broker & Investor
Fathom Realty
