Bigger Pockets: Cities are Cracking Down on Short-Term Rentals – What Does It Mean for Investors?

For most Americans, their primary asset is their home. An increasing number of Americans also invest in real estate to enjoy the long-term price appreciation potential and income that it provides.

In recent years, the income potential from short-term rentals has soared. That’s thanks to the rise of companies like Airbnb (ABNB). The company brings together homeowners and customers for anything from a single room to a whole home. However, many cities are putting in regulations on short-term rentals.

In 80 percent of markets, there’s at least some regulation on short-term rentals. And some places are even charging taxes that have been subject to hotels and resorts. The impact of these rules is a restriction of short-term rentals.

That could impact the housing market. Many investors bought a second property for the high-income potential of a short-term rental in recent years.

The inability to rent out a short-term property may be slowing listings. New York City has about 40 percent fewer listings than in 2018. But in regulation-light Phoenix, listings have grown by 96 percent.

Ultimately, potential real estate investors need to consider the impact of a short-term rental versus a long-term one. Even an accidental violation can trigger fines, fees, and higher taxes.

To read the full impact of laws impacting short-term rentals, click here.