Short Term Rental Issues in HOAs
Short Term Rental Issues in HOAs
Posted on: 7/12/2018
Michael DiLillo
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Has your HOA addressed the issue of short term rentals yet? It isn’t an issue in your HOA you say? Think again!

With the likes of airbnb, vrbo, FlipKey, HomeAway, and many others, short term vacation rentals have been significantly increasing over the last several years.

Why are short term rentals increasing?
I like to think of short term rentals as belonging to two categories. One is where the entire residence is rented and two is where homeowners may rent a single room or portion of their residence. In this case, the renters will be sharing the residence with the owners during their stay.

Case 1: The entire residence is rented
Let’s assume there is a property that can rent for $1000/month somewhere as a long term rental property. If instead, they converted to short term rentals the rate would likely be $175/night. If the property were rented 30 days in a month the income would be $5,250. The property would only need to be rented 6 days/month to make the same $1000/month if it were a long term rental. Do you think this may tempt a homeowner into converting their property to short term rentals? Heck yeah!

Short term rentals are good income.Case 2: A room or portion of a property is rented
For example, let’s assume someone lives in a 3 bedroom house. Kids went off to college, or they have a guest room that is hardly ever used. They then realize they could rent a room in their home for $80/night. That’s an extra $2,400/month income if it is rented for 30 days. Maybe it only gets booked mostly on weekends. At 10 days/month that would bring in $800 extra income.

So you can see that there are very compelling reasons why someone would choose to make their home available for short term rentals. Even if short term rentals are not an issue for your HOA at this time, you can be sure that it will become one very soon. The short term rental market has seen extraordinary growth in the last 5 years or so.

Does your HOA have Regulations in place for short term rentals?
Chances are your HOA’s covenants were written before short term rentals were so popular or your HOA may not have addressed this issue in its covenants. Typically, rental regulations generally are not applicable to short term rentals. Unless of course, your HOA has an outright ban on rentals in general. In that case, you probably would not be reading this article.

Banned Short Term RentalsAssuming your HOA does not have anything in place at this time, your HOA first needs to decide how they would like to regulate short term rentals. Options include completely banning short term rentals to drafting reasonable regulations to help ensure the sanity of all your homeowners.

Another issue that should be considered is the effect that banning either sort term or long term rentals can have on home sales in your HOA. Someone who wishes to purchase a second home with the ability to rent it when they aren’t there would not consider purchasing a home in your HOA because of the restriction. On the other hand, a no rental regulation may be attractive to some prospective buyers who wouldn’t want renters constantly coming and going in their neighborhood.

Short term renters may have wild partiesWhy would short term rentals present potential problems for an HOA?
Problems that may arise include increased traffic & parking issues, noise from party animal vacationers, and trash being left behind on the property.

Parking issues from short term rentals in your HOAHopefully, your HOA is beginning to address these issues, but if not, I strongly recommend addressing the issues of short term rentals right now.
I should mention that many municipalities are regulating or banning short term rentals for the same reasons. Obviously, if your municipality bans short term rentals then this issue is moot for your HOA.

Trash from short term renters in HOAsLegal opinion states that leasing restrictions must be imposed by covenants or amendment to covenants and cannot be enforced by the adoption of a rule or policy. Your state laws may also contain provisions on how covenants can be amended in respect to leasing restrictions. For example, in the state of Colorado, a vote of 67% of the homeowners is required for additions or modifications of leasing restrictions. As you could imagine, short term rentals can become a very hot topic. I have heard of tremendous controversy at HOA meetings between homeowners who are adamantly against allowing short term rentals and homeowners who want to protect the right to rent their homes on a short term rental basis.

Why your HOA should act now.
Your HOA may not have a problem with short term rentals at this time, but your HOA should still act now. Once you have a significant number of homes that participate in short term rentals it will become very difficult to regulate it once the problems exist. You will have homeowners who are making very good income on short term rentals wanting to protect their source of income. Imagine the difficulty then of getting 67% of the homeowners to agree on regulations.

What should Regulations address?
Assuming your HOA will want to regulate and not outright ban short term rentals there are several topics to be considered in the regulations.

  • Mandatory registration of homes that wish to participate in short term rentals. A huge majority of homeowners do not register their property with local or state authorities even though the law requires registration. The burden then falls on the HOA to know what properties are renting short term.

  • Fines that can be imposed for violations of the regulations.

  • HOA law suits are expensiveUnfortunately, HOAs cannot evict or shut down a homeowner who violates the regulations. The only recourse to collect fines if a homeowner refuses to pay is to take the offender to court, which is expensive and time-consuming. An option to help motivate the paying of fines can be the revoking of the right to common areas of the HOA if you have any. Anyone who has unpaid fines is not allowed to use the pool or community room for example. Use your imagination to come up with motivations to get the fines paid since it is difficult to force them to pay.

  • An alternative to completely banning rentals may be to only allow rentals for a minimum of 30 days or 6 months for example. If you choose this option think about how you would enforce this. You don’t want a homeowner claiming they thought the renter was going to stay longer but “something came up”.

I sincerely hope your HOA takes this topic seriously. Short term rentals are not going away anytime soon. They have been increasing tremendously each year and it is forecast to continue that trend for many years.
Michael DiLillo
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