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HOA Short Term Rental Restrictions: What Do They Mean for SFR Investment Portfolios?

HOA Management, Investors,
Published: May 16, 2024
Updated on: Jun 27, 2024
  by Editorial team
blog

The arrival of short term rental platforms like Airbnb and Vrbo has given an unprecedented opportunity to generate income from investment properties. But this new avenue for income has also raised concerns among Homeowners’ Associations (HOAs) who seek to maintain the character and tranquillity of their communities.

HOA restrictions on short term rentals can create a significant roadblock, especially for SFR investors and property managers. These restrictions can limit your flexibility in managing properties, potentially impacting rental income and investment performance.

You might find yourself grappling with questions like: 

  • Can HOAs legally restrict short term rentals? 
  • How are these restrictions enforced?
  • Is there a way to navigate these regulations without putting my investments at risk?

This is where our article steps in. We will delve into the nuances of HOA restrictions on short term rentals and unpack why they exist and most importantly, how you can get around them.

With this knowledge, you can make informed decisions that protect your investments. Let’s jump in and untangle the complex web of HOA short term rental restrictions.

What Is a Short Term Rental?

short term rental restrictions- little house on a green loan

Before we understand the nuances surrounding HOA restrictions, it’s important to define a short term rental. Short term rentals are often called vacation rentals, transient rentals, or resort dwelling units. 

These properties are furnished properties such as apartments, homes, or condominiums leased for short periods such as 30 days or less. The duration of such leases is typically less than six months, and in many instances, they are rented for just a few nights or weeks at a time.

Unlike traditional long-term rentals, short term rentals offer greater income potential due to the higher rates typically charged per night. However, they may require more active management given the turnover of tenants.

What Are Short Term Rental Restrictions?

short term rental restrictions- nice white house brown roof surrounded by foliage and palms

Short term rental restrictions are legal constraints and regulations, usually enforced by Homeowners’ Associations (HOAs) or local governments. They dictate the terms under which residential properties can be used for short term or vacation rentals. 

The short term rental restrictions can range from outright bans to particular operational requirements. They also can vary significantly across different locations and many places require hosts to hold a license or permit. Some common regulations tackle issues like the maximum number of days a property can be rented out per year, maximum occupancy limit, and safety and insurance requirements.

When it comes to HOA restrictions, it’s also important to consider the legal framework that underpins these decisions. Key aspects include:

  • CC&Rs: The Covenants, Conditions, and Restrictions are the governing documents for the association. Any ban on short term rentals must be explicitly stated within these documents.
  • State Laws: Some states have limitations on HOA’s rights to restrict rentals, so it’s important to be aware of state laws that might override association rules.
  • Case Law: Court decisions set precedents. Existing cases in your state can provide guidelines for what is or isn’t legally enforceable in your HOA.

Why Do Associations Dislike HOA Short Term Rentals?

While not all associations are opposed to short term rentals, many have voiced objections. In some instances even, HOAs prohibit short term rentals altogether. The common reasons for such restrictions typically revolve around maintaining the residential nature of the community. 

Many HOAs find the support of local authorities in imposing restrictions on short term rentals. In its City Code, the city of Orlando (FL), for example, lists various rental categories  ( including home shares or partial rentals, like VRBO, Airbnb, and Homestay) and their rental restrictions.

Home share rentals must be hosted by an owner or tenant who lives on-site, and only up to half the bedrooms may be rented.

OwnershipRental SpaceTime FrameCategoryRequiredDetails
Homeowner who lives on- or off-siteAll bedrooms1 to 29 daysNOT PERMITTEDn/aAn individual homeowner may not rent the entire home under City of Orlando home sharing law (e.g., Airbnb, VRBO).
Entire living space30 days or moreRESIDENTIAL RENTALn/aStandard rental leases are permitted and are regulated by state and federal housing laws.
Homeowner who lives on-siteUp to half of bedrooms1 to 29 daysHOME SHARERegistration and annual feeCan also be hosted by tenant with notarized owner permission. Read: Ch. 58 Part 5B(19) – OWNER-OCCUPIED HOME SHARING.
All bedrooms except owner’s1 day to seasonalBED AND BREAKFASTBusiness Tax Receipt Bed and Breakfast Facility: An accessory use in which a room(s) or lodging unit (or units) and “continental” breakfast service only is provided to guest clients for lengths of stay ranging from one night to seasonal by the owner of the principal structure living on-site. [Sec. 66.200] No more than two rooms or lodging units on any residential district building site; in non-residential districts no more than eight (8). Nine (9) or more shall be considered a hotel/motel. [Sec. 58.917] Read: Ch. 58 Part 5B(2) BED AND BREAKFAST FACILITIES.
Homeowner who lives on-site7 days or moreGROUP HOUSING Zoning Official Letter of Determination Business Tax ReceiptOwner-occupied rooms are rented for one week or more and contain kitchen facilities. Includes college dormitories, boarding houses, hostels, and group homes where direct care or supervision is not provided. [Sec. 58.540] Read: Ch. 58 Part 3F – CONGREGATE LIVING FACILITIES.
Business ownerAll bedrooms / entire living space1 to 7 daysMOTEL/HOTELBusiness Tax ReceiptMotel: An establishment consisting of a group of attached or detached lodging units having bathrooms and designed primarily for transient automobile tourists. A motel generally provides automobile parking facilities convenient to the lodging rooms and may or may not furnish customary hotel services such as restaurants, dining rooms, meeting rooms, bars, and similar uses. This term includes timeshare facilities, condotels, and any group housing occupied by or intended for occupancy by over 52 people. [Sec. 66.200]
Business owner7 to 29 daysCOMMERCIAL DWELLING UNITBusiness Tax ReceiptDwelling Unit Commercial: A room or rooms connected together and constituting a separate independent unit for an occupancy period of no less than seven (7) consecutive days and no more than twenty-nine (29) consecutive days and containing independent cooking and sleeping facilities. Any unit occupied for less than 7 consecutive days shall be classified as a motel. [Sec. 66.200]

Common Reasons for Short Term Rental Restrictions

Here’s a closer look at these reasons:

1. Disruption of Community Atmosphere

The frequent turnover of renters can disrupt the sense of community and be a challenge in establishing lasting relationships and trust with neighbors. This lack of continuity may lead to a less cohesive and connected community atmosphere, that ultimately impacts the overall neighborhood dynamics.

2. Noise and Safety Concerns

When property units are frequently rented out on a short term basis, HOAs fear that there will be a reduced sense of accountability among renters toward maintaining a peaceful environment. Occupying the property for shorter terms can result in increased noise disturbances and potential safety issues. 

3. Fairness in Costs and Participation 

In HOAs where members contribute to shared amenities and services, the issue of fair cost distribution often comes up. The concern is that short term renters may enjoy these amenities without accepting an equitable share of the expenses. In turn, some in the community may feel that there is an imbalance in cost-sharing and community participation. 

4. Property Damage

The rapid turnover of short term rentals can pose challenges for property maintenance and management, increasing the likelihood of wear and damage to the common areas of the HOA. With limited oversight and inconsistent care by short term renters, properties may be more susceptible to deterioration. 

This situation may require additional resources to address maintenance issues and uphold the overall quality of the community.

5. Taxation and Revenue Concerns

Some short term rental properties may operate without paying the same taxes as traditional lodging businesses. To address this, authorities often introduce short term rental tax requirements or annual permits.

For SFR investors looking to strike a balance between offering attractive rentals and optimizing their returns, understanding the restrictions behind short term rentals is essential. This knowledge will help you navigate your most profitable way around them in your strategic planning.

4 Ways to Deal with HOA Short Term Restrictions

short term rental restrictions- fancy modern house in all white

HOA restrictions on short term rentals can appear strict, but they are designed to maintain community standards and property values. 

Besides, there are some legitimate approaches that SFR investors might consider to navigate these restrictions effectively. Here is how:

Collaborate With a Real Estate Professional

Working with a local real estate expert who understands the specific landscape of HOA regulations can be highly beneficial. These professionals have in-depth knowledge of the local real estate market and can guide you in finding properties that not only meet your investment criteria but also comply with the HOA’s guidelines. 

They can identify opportunities within communities where short term rentals are viewed more favorably or suggest strategic investments in areas with less restrictive HOA policies.

Consult an Attorney’s Advice

Consulting with an attorney who specializes in real estate or HOA law is a must. Legal experts can offer insights into the legal framework governing HOAs and advise on the enforceability of specific HOA rules. 

They can also help you understand your rights as a property owner and explore any legal avenues that might allow you to engage in short term rentals despite existing restrictions. This might include challenging overly restrictive rules or negotiating exceptions based on specific legal precedents or the unique circumstances of your property. 

An attorney can clarify how frequently HOA rules can legally change (typically once or twice a year) helping you avoid unexpected surprises. Stay informed about potential changes, which may introduce new fees or additional restrictions.

Engage with the HOA Directly

Another approach is to engage directly with the HOA board to discuss the possibilities of short term rentals. Sometimes, open communication can lead to mutual agreements or compromises, such as limited short term rental permissions during certain times of the year or under specific conditions that the board sets. Building a positive relationship with the HOA can also open doors to other negotiating opportunities and ensure that your investment activities are well-received within the community.

Collaborate with an Experienced Partner

Partnering with someone who has a proven track record of navigating HOA rules management successfully can significantly enhance your strategy. An experienced partner can provide regular updates on HOA rules and regulations, notify you about any changes, and help make sure you don’t miss anything in the documents.  This will help you reduce the learning curve and potential legal risks. 

This partnership can be particularly effective if the partner has established relationships within the community or with the HOA board, facilitating smoother negotiations and potentially more favorable outcomes.

Speaking of which, if you’re on the lookout for such a partner you should check out Rexera’s Asset Management page.

Additional Tips for SFR Investors

Successfully managing short term rental properties within HOA communities requires a proactive approach. Here are some additional tips to stay on the right side of HOA rules:

Understanding Local Ordinances

Beyond HOA regulations, it’s important to keep an eye on city or county ordinances that may affect short term rentals. This includes zoning laws, licensing requirements, and any caps on the number of days a property can be rented out annually. 

Investors should also be aware of how these ordinances interact with HOA rules to ensure dual compliance.

Keeping Up with Regulations

Staying informed about changes in local and state regulations is vital. This will enable you to stay one step ahead and adapt your business model accordingly. Consider subscribing to regulatory updates from local government websites, real estate associations, and legal advisories. 

You could also use tools such as regulatory tracking software to receive alerts on changes that could impact your investments.

Good Communication

Maintaining open lines of communication with the HOA board and neighbors can help you stay informed and address any concerns proactively. Try to foster a community network that supports your business. Regular attendance at HOA meetings and participating in community events can help you become a recognized and respected member of the community.

Enhanced Screenings

Implement robust screening processes for short term guests to ensure that responsible renters occupy your property. That type of screening process involves more than basic checks. 

These screenings are thorough background checks, identity verification, and rental history verification. They can also include credit checks, social media screening, reference checks, and interviews to assess guest suitability. 

Additional measures like employment verification, custom questionnaires, and automated screening tools further ensure that only responsible and reliable renters occupy your property.

Economic Forecasting

Anticipating the impact of potential future restrictions on your investment is key for long-term planning. Use data analytics to understand market trends and potential shifts in the regulatory environment. 

Predictive analytics can help you anticipate market demand and adapt your investment strategy accordingly. This might involve diversifying your property portfolio to include both short term and long-term rental properties to mitigate risks associated with regulatory changes.

Additionally, you can sign up for newsletters and community platforms that offer updates and discussions around the latest economic developments and forecasts in the industry. 

Here’s a short list of resources our team frequents when researching economic trends. 

ResourceDescriptionEconomic ForecastingData AnalyticsMarket TrendsRegulatory Impacts
Urban Land Institute (ULI)Offers comprehensive research reports, publications, and newsletters focusing on real estate development, economic forecasting, and regulatory impacts.
National Association of Realtors (NAR)Provides regulatory insights affecting real estate.
Real Estate Economics JournalPublishes scholarly articles and research on economic forecasting, market trends, and the impact of regulations on real estate investments.
REALTOR® MagazineOffers articles, news, and updates on economic trends, market trends, and regulatory issues affecting real estate professionals.
PwC Real EstateProvides reports and analysis on real estate trends, forecasts, and the impact of regulatory changes on the market.
Zillow ResearchOffers data, insights, and forecasts on housing markets, economic trends, and real estate investment strategies.
Real Estate RoundtablePublishes reports on economic trends, market forecasts, and regulatory impacts on real estate.

And a few additional news outlets that delve into real estate topics that you might find valuable. 

ResourceDescriptionEconomic ForecastingData AnalyticsMarket TrendsRegulatory Impacts
The EconomistOffers in-depth analysis, commentary, and forecasts on global economics, finance, and business trends.Limited
Financial Times (FT)Provides authoritative reporting, analysis, and forecasts on global financial markets, economics, and business.
The Wall Street Journal (WSJ)Renowned for its comprehensive coverage, analysis, and forecasts on financial markets, investing, and business news.Limited
Barron’sOffers insightful analysis, market commentary, and forecasts on investing, finance, and economics.LimitedLimited
The Financialist by Credit SuisseProvides thought-provoking articles, analyses, and forecasts on global economics, finance, and investment trends.LimitedLimited
Harvard Business Review (HBR)Offers scholarly articles, analysis, and forecasts on business, management, economics, and finance.LimitedLimited

Conclusion

short term rental restrictions- fancy modern house with pool

The interplay between short term rental services and HOA restrictions can be complex, but with a strategic approach, they can be effectively managed.

Remember, HOA regulations aren’t static. They can evolve as communities change and new rental models emerge. It’s important to maintain good standing with your local HOA and stay vigilant about external factors such as local and state laws that may impact your investment.

By understanding the motivations behind these restrictions and taking a proactive approach to dealing with them, you can continue to benefit from the opportunities in the short term rental market. Partnering with industry professionals who have a deep understanding of the complexities surrounding HOAs can also be significantly beneficial.

Get in touch with Rexera’s SFR asset management team to learn more about how we can speed track your work with HOAs rental restrictions included. 

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