What to Do if Your Airbnb Gets Shut Down?

Welcome back to the Short Term Rental Riches podcast. I'm just going to cut to the chase this week. It's not all roses and daisies out there. In the short term rental world, sometimes really big changes can affect us in a really big way, even to the point where it's not worth it for us to have our short term rental anymore. Or maybe because we just can't even operate it anymore. Talking this week about what to do when the regulations change and you get shut down. Welcome to Short Term Rental Riches. We'll discuss investing in real estate, but with a specific focus on short term rentals. Quick actionable items to acquire, manage and scale your portfolio. I'm your host, Tim Hubbard.

Welcome back to the Short Term Rental Riches podcast. It's difficult out there when the rules change and it changes the way we can operate our short term rentals. And we all know if we've been in the space for a little while that these rules can change. Some places they're really str. In some places they encourage short term rentals, like vacation rental markets, for example. I found that in general, places with housing shortages can have some of the strictest regulations. Also places that are nice neighborhoods, people don't want you moving in with a short term rental and guests coming in and out. So there's certain situations that are going to be a little easier than others. So I just want to break down the the steps this week to how you can be proactive. First of all, if you haven't bought your short term rental yet, the steps that you'll want to take to make sure that you're getting into a good investment. I want to talk about those areas that are still gray areas and where maybe it's legal to operate a short term rental, but there's no actual rule in place. And then finally I want to talk about what you can do if your rental was actually shut down or the ordinance or the city regulations changed and and you can no longer operate a traditional short term rental. So short term rentals can be a lot of fun, but when they get shut down or when the rules change, that really flips things upside down. And this is a really big difference between investing in traditional long term rentals and real estate versus short term rental. It's something that we have to be super careful about. We can't buy a short term rental that we can't legally operate as a short term rental. So the first step is just being proactive. If you haven't bought your short term rental yet, well, there's some really easy ways now to check if it's legal in the area where you plan on investing. And we have to do this. We have to be 100% certain that our short term rental can be operated as a short term rental. So where can we go? Well, Airbnb has provided a lot of good resources for this on their website. So if you go on Airbnb.com and you search for the city, there is a regulation section and you can look at your city's regulations. Now they don't have regulations for the whole world, but it's a good starting place to do have a lot of good information. But I wouldn't stop there. Right. This is a good first place to check to see if they have information already. The most prudent way to do this is to call the city, to call the local ordinance and or the county and make sure that there is a permit that you can get for your short term rental and that it's easy to get. That's the other thing. We don't want to buy a property with the chance of being able to get a permit because what if we don't actually get it? So you may find that a certain city or a certain county or a certain neighborhood allows for short term rentals, but you really need to dig into the actual property because you might be buying a property that has historic regulations, you might be buying a property that has some sort of HOA regulations against short term rentals. It might be a property in neighborhood that has some CC and RS in place that prevent you from operating as a short term rental. So you really need to dig into the the specific property that you plan on buying. And the easiest way to do that is just to talk to the ordinances and make sure. So that is the first step. We want to be proactive. Hopefully you can find a good property that already has a permit in place. And if you are able to buy an existing property with an existing permit and those are limited, well, that can be a very lucrative property because supply is restricted. Right. And even though we might be in somewhat economic rocky times, I still think that short term rentals is a new way that people are living, it's going to continue to stay that way and demand. As long as you're in a good market where people want to be and the population's growing and there's reasons to be there. We talk about that a lot on this channel. As long as you're in a market where there are plenty of reasons to be there and plenty of guests to attract Well, I think that's going to be a good investment as long as it's legal. So let's say you found a property and everything is perfect about it. The numbers look really good, but it's in an area that doesn't have a permit process in place yet. You don't know if it's actually legal to operate an Airbnb there because they don't have a rule saying that you can't do it, and they don't have a rule saying that you can do it. Well, I would be careful with these areas because what could happen, you buy that property and a month down the road, a year down the road, several years down the road and something changes and you can no longer do it. There's a. Well, that's really going to affect your investment. And depending on how much you're relying on that income, it could really just turn your life upside down. So with that said, I know that a lot of you out there are buying properties in these areas, myself included. Now, I'm not recommending this and I do have backup plans, so I'm going to get to those backup plans here in a quick second. But a couple things that you'll want to consider if you are still okay. And again, this comes down to your risk level because you have to keep in mind that this property's regulations could change. And so you got to have backup plans. We're going to get to that. But a first step if you're buying a property in one of these areas is just talk to the neighbors. You always want to talk to the neighbors. Even if, if it's, even if you have a permit for the property, you want the neighbors to know what are going on. And I found that more people have had issues in nicer neighborhoods or more exclusive neighborhoods, you could say, where people have been living peacefully for a long time. Not to say that short term rentals aren't peaceful, but they do have a little more action going on, right? There's more people coming in and leaving with luggage and it could raise some eyebrows. So if you're in a really exclusive neighborhood, or you're in a neighborhood that's just strictly residences and there's no commercial shopping there, there's no mixed use area, well, then that is going to raise more eyebrows. You want to make sure that you talk to your neighbors and your neighbors are good source to talk to anyways. We can learn a ton from our neighbors. Anytime I'm buying a property, I like to go there in person. I haven't always Done that. As a lot of you know, I live in South America and I have for quite a long time. So I have had people go there that I really trust. But if I'm there in person and I see a neighbor walk out of their house, you better believe I'm talking to them, I'm telling them what the plan is. And it's a great way to learn about the neighborhood, to learn if there was any issues there, to get some resources. Who knows, they might even be a resource for a handyman, which you know you're going to need for your short term rental. So make sure you talk to your neighbors. That's the first step. The second step if you're buying a property in an area that doesn't have a regulation in place is just make sure that you're constantly checking to see if they do come out with some sort of regulations because you're going to want to file for that permit as soon as possible. Now the last thing here is that you just got to know your risk tolerance, right? And if you're buying an investment that makes sense as a long term rental, that is one of my backup options. I'll get to that here in a second. But if you're buying a property that makes sense as a long term rental, but it makes much better income as a short term rental, there's no regulations in place. Well, maybe you're comfortable with that risk knowing that hey, I might be able to make a 2, 3, 5x times in revenue versus the long term rental for 1, 2, 5 years or maybe forever. But knowing that those laws might change if you're comfortable with that, well then I'm not going to push you away from that. I just not recommending it. So the last thing is, if we're buying a property in an area that's got gray areas, we just have to understand our risks. So now let's get to the backup options though. What happens if we already have a property, a short term rental, it's been doing really well and all of a sudden the regulations change and we can no longer do it. I was in Lancaster, Pennsylvania a few months back giving a talk with an awesome group of investors and we visit a lot of cool properties there. One of the ones we visited was this amazing wedding venue. It was really, really nice. I mean you just felt calm being there. There was rolling green hills and there was quite a few short term rentals built into this one property. But unfortunately the regulations changed and after operating this property this way for several years, my friend can no Longer legally do it as a short term rental. So this brings us to our backup options. What backup options we have if we get shut down as a short term rental. Well, the first thing I would say to take a look at is what is your city or county's definition of a short term rental? Most of the time it's a property that's rented for less than 28 to 30 days. But there could be a different definition. So make sure you understand what it is. They're asking, asking first. So if we eliminate the ability to rent for less than 28 or 30 days, then that means we can rent for more. Right. That's no longer short term rental. So we've talked about that before. Medium term stays have become really common with traveling nurses, with corporate travel, with people trying to discover if they really like a new city and maybe they want to live there. So medium term stays can be a great option. I know I've done this with a lot of my portfolio, so that is one excellent option that could provide a little less operations for you but still bring in a lot more income than your long term rental. So at the opposite end of this spectrum is a very, very short term rental, which is so short that someone's not actually even staying at your property. If you missed the episode a few weeks ago, go back and check it out. We talked about Peerspace. It's a platform where you can actually rent your property out by the hour. And because no one's staying there at your proper, it's technically not a short term rental anymore. So this could be a good option for someone that has a wedding venue or maybe people are just needing it during the day, or someone that has a really nice, good looking property that's unique or caters to photographers, or someone that just needs it for a few hours. You'd be surprised. The hourly rates might actually exceed your nightly rates in some situations. So that is your second option. The first one is we can do a medium term stay. The second one is we can do a tiny short term rental that's not an accommodation, it's by the hour. And we can do that with Peerspace. A third option is to see if this property works as a long term, a traditional long term rental. So think a year long lease. And this is my ultimate backup plan for the majority of all of my portfolio. So it all comes down to cash flow, right? And what amount of cash flow you're comfortable with. Hopefully one of these three backup options provides you some cash flow so that you're not negative and you can keep that property and you can build equity and you can build wealth for a long, long time. But there is a chance that by not being able to operate your short term rental, you're going to be underwater. Right. So what is another option? Well, the fourth option would be to sell the property. Yes, I know this is not an ideal situation, but it is a reality for some people. And if we don't see things changing, if there's no way that we can get a permit, none of these other backup options are going to work. Well, then it's up to you if you want to stay with a property that's going to be losing money for a while. Right. So those are four options you have. If the regulations change, you can try a medium term stay, you can try an itsy bitsy stay, you can try a traditional long term stay. If your property still cash flows, you can try selling your property. And. But there is a caveat here. There is a caveat, and that is that a lot of people, a lot of us have bought short term rentals because we wanted to personally use them. Right? They're vacation rentals or maybe they're places where we're spending more and more time, maybe a few months, a year. And so it's part investment, but it's part short term rental. Well, another option can be, is it possible that you could just live there longer? Maybe you take that retirement and you can work remotely now and you move to a place that you wanted to move to much sooner than you thought you had. So I know that's not a reality for a lot of people, but maybe it is for you and it is an option. So it's never fun when the rules change against us, they go against our investments. These things are changing all the time. I think sort of at the end of the day it's like an Uber situation, right? Most of us enjoy taking Uber versus traditional taxis or other options. I know I do for sure. Especially when I show up in a new country, especially a country where I don't speak the language. And if I have Uber, well, I trust it, right? They have a bunch of reviews. The price is already negotiated versus me going to a taxi driver trying to ask how much it costs to go to a certain place that I don't exactly know where it is. And so Uber's been really good for the world, right? Short term rentals have as well. And so I think at the end of the day, short term rentals are going to prevail in a lot, a lot of cities. The ones where they're going to have the toughest time or the regulations are going to be the toughest is where the housing shortages are highest, where there's more hotel lobbyists and where there's more people going against short term rentals. One last point I want to leave you with though, just on the bullish side of short term rentals is that these cities, you got to remember that they're earning transient auctions. Occupancy tax, right. This is a tax that Airbnb collects from a lot of cities, most all the big ones, and gives to them automatically. So every time you rent your short term rental out, if you're in one of these places or any city really has transient occupancy tax, that ordinance, that city, that county is getting that tax without having to create a whole other department, without having to hire a bunch of other employees. They're making in some cases tens of millions of dollars. And a lot of these same cities don't have big budgets. They're in the hole. Right? They need more money. And so for me to think that the city will just say goodbye to all of that money that was coming in, that's, that's a little difficult for a lot of places right now. Of course it's happening and it's going to continue to happen. So just make sure that when you get into investment, you're comfortable with it from day one. You're not betting on something changing in the future and if something does change in the future, that you're going to be okay with it or that one of those backup plans works for you. I hope that gave you a little more insight this week and I hope the rules haven't changed where you have your short term rental until next time. I hope you have a wonderful week and we'll talk to you soon.

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