January 18, 2016
Letting the Smoke Clear: What Vacation Rental Regulations Can Learn From Marijuana Regulations
Last week in The Goldin Standard, we gave an overview of the three things property managers should do to make the most of 2016. Join me this week for more on short term rental regulations and what the vacation rental industry can learn from the marijuana industry:
At first, it may seem like a stretch to compare the vacation rental industry to the marijuana industry, but some similarities are clear. You have two highly regulated industries. Thousands of budding entrepreneurs. Trail blazing companies fighting to be recognized brands. Very public and negative propaganda. Even Warren Buffett is an advocate of both industries!
Last year, the Denver Post reported that monthly marijuana sales in Colorado soared to over $100 million per month. According to The Economist article, “Mother of All Highs,” Colorado was on course to bring on just under $110 million in taxes on cannabis. Along with the tax benefits, the state no longer has to spend money regulating and enforcing regulations.
Face it, vacation rentals will always be under scrutiny as long as horror stories like these are surfacing. It may take some time, but I am confident that we will be able to figure out the best ways to tax short term rentals, many of which have just resorted to the same tax structure as hotels. The governments who do not create enforceable regulations will only drive the industry into the shadows, also losing out on the potential income that local governments could make on hotel/occupancy taxes.
For example, look at New York City. As of February last year, Capital New York reported that as many as 27,000 Airbnb units were listed in a given year. And yet, it is my understanding that short term rentals under 30 days are illegal in New York City. Imagine the amount of money that NYC is leaving on the table. If the average rate is $250/night, each of the 27,000 units rents 100 nights and taxes are 10%, NYC could bring in north of $67 million annually. Clearly, onerous regulations are requiring the industry to operate underground, and the only losers are the city and state.
Management companies are fine with paying taxes, fine with helping owner get licenses, fine with following ordinances; what they are not fine with is banning them all together, forcing managers to run extensive background checks on all the renters, properties having to be zoned commercial, and requiring the homeowner to live in the house.
The VRMA tracked economic impact studies, and the numbers are astounding. Both directly and indirectly, Florida alone accounted for $31.1 billion in revenue and 322,000 jobs. Aiming to take down short term rentals would completely disrupt local economies especially in traditional vacation markets, and eventually local, city, and state legislators will have to learn.
Let’s take one out of Colorado’s playbook. Instead of highly regulating or even banning vacation rentals, let’s instead embrace them. Maybe one day the smoke will clear for lawmakers, allowing them to sit back and watch the money roll in.
But what’s missing?
YOU! Get involved with local legislature. I advocate involvement as often as possible, and all too often, the response is “we’re too busy.” Are you really so busy that you will let your local legislature shut down the way you make money?
Here are 4 ways to get involved with vacation rental regulations and protect your business:
Step 1: Do your research and make sure you are compliant with existing legislation. Legislation can change quickly, but as long as you stay out ahead of it, you should be in good shape.
Step 2: Connect with the Short Term Rental Advocacy Center to see if there is a group in your market already working on combating onerous regulations.
Step 3: Join your local Vacation Rental Managers Association.
Step 4: Call your competition. Go grab a coffee with the biggest competition in town and discuss working together to ensure all of your businesses can survive.
Stay tuned for the next part in my three-part series, The Goldin Standard, for how to best look for expansion markets.