It’s the new American dream—buying a second home. Vacation rental homes have become very popular in recent years, with many people buying second homes as a getaway for family and friends, for their capital appreciation, and to rent out on platforms like Airbnb and VRBO. And while Airbnb’ing is the most obvious and publicized way to bring in revenue, offset the mortgage, and realize some tax benefits - it’s also been the focus of local regulations. Modern vacation homeowners need more flexibility to meet their objectives.
In 2020, there were 7.15 million second homes in the U.S., making up 5.11% of all homes, according to the National Association of Home Builders (NAHB). Many of these owners hoped to offset expenses with rental income, but changing regulations have made this more challenging.
Cities are cracking down on short-term rentals, causing problems for owners. Twimo offers a new way for second homeowners to share their homes with family members and friends, swap out their homes across a vacation home network, rent their homes for seasonal rentals, and short-term rentals for those who have a permit to do so.
The Changing Landscape: Vacation Rental Regulations
For a long time, renting a second home to vacationers was like a dream come true. It was an opportunity for second-home owners to maximize their investment, offering their homes to tourists and visitors who wanted a unique place to stay besides the typical hotel or resort. Homeowners could create schedules for when they would not use their homes.
These rentals often helped pay the mortgage, second-home care fees (cleaning, landscaping, etc.), HOA (homeowner association) fees, and other expenses associated with home ownership.
Tax Implications
But in recent years, things have been changing. Local governments have started to crack down on short-term rentals for several reasons. First, they argue that these rentals lead to a loss of tax revenue since many homeowners pay different taxes than hotels. The short-term rental industry pays local taxes on every night booked and expands potential tourists that spend on taxable items, including food, services, and local events. In addition, the second homes form a significant and important property tax base that doesn’t put stress on schools and other infrastructure.
Next, traditional hotels face tough competition from short-term rentals, which can offer lower prices and unique experiences. The hotel industry has even attempted to pressure agencies to create and enforce stricter regulations. Choice is typically good and hotels have had to sharpen their offerings to stay competitive.
Impact on Housing Availability and Affordability
There's also the impact on housing availability and affordability. Many cities believe that short-term rentals reduce the number of long-term rental properties, driving up housing costs for residents. As a result, new rules and restrictions have been implemented, making it more challenging for homeowners to rent out their properties as vacation homes. In many cases these restrictions are one-size-fits-all, applying to obvious vacation home subdivisions or very expensive homes along with any homes that may appeal to and be attainable by the local workforce.
Changing the Neighborhood Composition
Last but not least, there is a lingering concern regarding how vacation homes can change the neighborhood's fabric, including the transient nature of short-term rental guests and the potential for excess noise. This can be frustrating for long-term residents who now face noisy neighbors and those not aware of local norms and customers. Plus, residents demonstrate concern about what may happen as more and more homes in their area transition into short-term rental properties. In our experience, these issues can arise from full-time owners, full-time renters, or short-term renters.
Enforcement of neighborhood and local rules is necessary regardless of who is disturbing the peace or negatively impacting the neighborhood's composition. In addition, most vacation home hot spots do not have the infrastructure to support full-time living in all housing units. Schools, hospitals, sewage, internet services (etc.) would be stressed if all homes had full-time residents.
However, it is important to note that typical regulations and programs meant to increase the number of long-term rentals for the local workforce are ineffective at scale. Vacation homeowners want to use their homes throughout the year, making long-term rentals a non-starter.
Financial Implications for Second Homeowners
These restrictions popping up throughout the U.S. create financial hurdles for second homeowners who may have purchased the vacation property intending to offset expenses with some short-term rental income or have found upkeep more expensive than anticipated. While the definition of a vacation home varies by geography, in most cases, a vacation home is one where the primary homeowner lives less than 51% of the time. If the primary resident lives there 51% or more, the home is often considered an owner-occupied dwelling and may be subject to different regulations. Either way, these changing regulations can have a big impact on the pocketbook.
Here are a few reasons why:
Loss of Rental Income: Restrictions on short-term rentals can drastically reduce the rental income homeowners rely on to cover mortgage payments and upkeep.
Increased Compliance Costs: Navigating new laws and obtaining necessary permits or licenses can lead to additional expenses.
Property Value Concerns: Properties with potential STR income may decrease value if they can no longer be rented out as vacation homes or their usage is otherwise regulated. The open market value can be impacted even if the owner does not plan to rent their vacation home.
Higher Taxes and Fees: Some localities impose higher taxes or special fees on short-term rentals or even vacant homes. Those taxes and fees are also being imposed more and more on homes that remain unoccupied for too long, adding to the financial burden on homeowners. While this may have seemed like a good idea in dense areas suffering from urban blight, the vacation home market is significantly different in upkeep and purpose, making new vacancy taxes feel like both an overstep and a misstep.
Exploring Alternate Revenue Options for Second Home Owners
Many second homeowners, for example, in resort towns and cities such as New York City, San Francisco, Barcelona, Palm Springs, Aspen, and Santa Monica, have faced tough decisions in recent years. These cities have publicly cracked down on short-term rentals, hoping to reduce rental prices for the local workforce.
Some vacation homeowners been forced either sell their second home, potentially taking a loss or long term rent it to a local renter, thus making it unavailable to themselves as a vacation home.
Better options are to use the home more and share it with family and friends, do a home swap with other vacation homeowners to travel for free, or rent it seasonally with mid-term rentals (i.e., ski lease during winter or a stay for golfers wanting to try out the local greens), donate a stay to charity like Make a Wish Foundation and get in line for an STR permit. The best case is to do all of the above, but it can feel complex. This is where Twimo comes in.
Staying Compliant with Local Regulations
Staying informed about local short-term rental regulations is critical for second homeowners. Each locality can have different rules, so you need to do your research and understand these laws. Resources like city websites, local government offices, and legal advice can help you stay updated on any changes.
To remain compliant, we recommend you follow these best practices:
Stay Informed: Regularly check for updates to local regulations.
Proper Documentation: Keep thorough records of rental agreements and payments.
Transparency: Be clear with your guests about the rules they must follow.
Tax Requirements: The IRS expects you to report rental income on your tax return if you rent your property out for more than 14 days a year, but second home expenses can be deductible.
Keep up on Home Maintenance: Make sure you prioritize the upkeep of your second home. Proper home maintenance can protect the value of your asset, especially in harsh mountains, beaches, or urban environments.
Also, it’s worthwhile for us to mention that the definition of "personal use" days is broad. It includes any days you or a family member use the house, even if they pay you rent. It may also cover days you donate the house's use, such as for a charity auction or rent it out for less than fair market value.
Twimo: A New Solution for Second Home Owners
At Twimo, we obsess over your holistic vacation home ownership experience, whether you rent your home or not. In fact, over half of our clients keep their homes private, meaning their home’s info and calendar are hidden from public view and password protected! Twimo helps you manage vendors, track expenses, and share your home with family and friends. With options to share, swap, rent short-term, or rent seasonally, you’ll improve your home’s utilization while minimizing headaches.
Twimo’s vendor management services simplify scheduling, communicating with, and paying your cleaners, handyman, and others. Having all expenses tracked in one place makes end-of-year taxes easy. Join Twimo today and regain the vacation home experience you had intended!
