Arizona is blazing a new trail for the future of short-term rentals. As cities across the nation restrict or even ban the renting of properties on a short-term basis, a new Arizona law allows them anywhere in the state, without limits.
The bill was passed by Arizona state lawmakers in May of last year, and then signed by Arizona Gov. Doug Ducey. It took effect on Jan. 1, 2017, so this is just the beginning of a new open playing field for hosts on websites like Airbnb, HomeAway and VRBO.
The new law is very simple. Cities, towns, and counties are not allowed to restrict short-term rentals in any way. Hosts can rent out rooms, homes or other properties for as many days of the year as they like.
They only have to pay a 6.5 percent tax that’s similar to a hotel tax. The rate includes a 3 percent privilege tax and another 3.5 percent transient lodging tax.
The law does “not” apply to properties that belong to a homeowners association. It basically states that homeowner associations adopt a set of rules that homeowners agree to when they buy their properties, and that that government agencies don’t interfere with those rules.
Bans Suddenly Up-Ended
So the minute this law kicked in, short-term rental bans in several Arizona cities were suddenly up-ended. Sedona and Scottsdale were among those cities. The new law invalidated their rules and made them unenforceable.
The tax collection process was one thing that seemed a bit daunting to some hosts. But last month, Gov. Ducey and Airbnb came up with a plan to simplify that part of the process.
They agreed that Airbnb would process the tax as part of the individual rental transactions. As a result, the tax hassle has been eliminated for hosts and the process helps ensure that tax revenue is paid to the state in a timely manner.
Ducey said in a press release: “This groundbreaking agreement is a signal to entrepreneurs across the U.S. that Arizona is a state that empowers innovative companies like Airbnb to set up shop and expand their operations.”
An official in the Arizona Department of Revenue said: “Streamlining the filing and payment of taxes for innovative companies is more efficient, more secure, and helps our state operate at the speed of business.”
Airbnb said that this agreement: “Represents an important step forward for thousands of Arizonians who share their homes on Airbnb.”
The company says it has about 7,900 hosts in Arizona, with a typical listing booking about 44 nights a year. A typical host earns about $4,900 a year.
Many of those hosts are homeowners renting rooms in homes that they live in, but Arizona’s new law also allows investors to rent out as many properties as they like.
A Different Story Elsewhere…
The short-term rental story is much different in places like San Francisco, where homeowners are heavily restricted as to how many days a year they can rent out a simple room. They must also be permanent residents and they can only rent out the home or a room in the home that they live in. So, what San Francisco and many other cities are turning down, the whole state of Arizona is embracing.
But before you go skipping off to Arizona to start up your short-term rental business, be sure you weight the pros and cons of renting short-term versus long-term.
Among the benefits of short-term rentals, you can use the property yourself when it’s not rented out and you can charge more for a short-term rental. But there are drawbacks, including gaps in that income stream along with other expenses such as furniture and more frequent upgrades to keep the property in tip-top shape. And if you’re not in Arizona, watch out for new rules and limits on what you can do.
The benefits are much different for long-term rentals. They tend to have a lower vacancy rate, which provides a more stable, consistent cash flow. They also don’t need to be furnished. With good screening, the tenants are more likely to treat the property like their own, which cuts down on maintenance costs. Management fees are also less for long-term rentals than for short-term rentals.
Those are just a few things to consider. Due diligence is key in any real estate transaction. If you want to better understand the due diligence process, download our checklist at www.RealWealthNetwork.com.
About the Author
Kathy Fettke is the founder and co-CEO of Real Wealth Network, a passive real estate investing club with more than 24,000 members. She’s also the author of “Retire Rich with Rentals” and host of “The Real Wealth Show,” a featured podcast on iTunes with listeners in 27 different countries. Kathy is passionate about understanding real estate cycles so she and her members can invest in the best markets and best deals available today. She is frequently invited to share her expertise on CNN, CNBC, Fox News, NPR, CBS MarketWatch and in the Wall Street Journal. Kathy received her BA in Broadcast Communications from San Francisco State University and worked in the newsrooms of CNN, FOX, CTV and ABC-7. She’s past-president of American Women in Radio & Television. Kathy loves the freedom that real estate investing can bring. She lives in Malibu, California, with her husband and two daughters and enjoys traveling, hiking, rock climbing, skiing, figure skating and surfing.