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Effect of Airbnb and VRBO on Downtown Condos

By Mike in Downtown San Diego Real Estate|October 2014 with 0 Comments

Effect of Airbnb and VRBO on Downtown San Diego Condos

The emergence and popularity of social sites like Airbnb and VRBO have had quite an effect on the management of Downtown condos.   These sites provide tourists and visitors to Downtown San Diego an alternative to hotels.    Downtown condo owners are able to rent out their unit by the night, week, or even month by advertising their listing on the respective sites.   Sounds great, but there are issues…primarily with the HOA.

Most Home Owners Associations strictly forbid interim occupancy. After all, how would any reasonable home owner feel if you had paid half a million dollars or more to essentially live next to a hotel space? In many of the Rules and Regulations of the HOA, if owners are renting their home they have to abide by certain criteria like minimum lease terms (30 day, 6 month, 12 month, etc) and leases on file.   Leases on file help the HOA determine the owner occupancy rate of the building (important for financing) and keep up to date contact info in case of emergencies.   Failure to comply with these rules can result in a pricey fine from the HOA to the home owner.

If a homeowner can get around the HOA requirements for short term rental, the second issue is that short term rentals provide no opportunity to charge any “transient hotel tax” from the city.  Downtown San Diego sits in the middle of a Tourism and Marketing District.  Funds from a Transient Tax are pooled for the city to promote tourism and provide services to the hotels in the city centre.   Technically speaking if your Downtown Condo is rented out on Airbnb and VRBO for less than one month, the homeowner is responsible for collecting and remitting the Transient Occupancy assessment to the city.

The effects and management of these issues for HOA’s and property managers has become very much a part of everyday business over the last year or so.  All of the sudden, there needs to be time spent to manage the sites for any wrong doing and apply penalties accordingly.   For those tenants and owners who are currently renting on the sites and are not compliant with HOA rules, the fines of $500 or even $1000 have become a mere “cost of doing business”.   For example…in the week of the popular Comic Con in the summer, rents on Airbnb and VRBO could be as much as $10k a week!  Owners and tenants will gladly pay the fine for this potential profit margin.   Property mangers who want to protect their properties against this potential for a rules violation against the HOA are now having to put language into the lease forbidding any short term rental.

Recently in the Union Tribune there was an article of an Owner of a Mark Condo in the East Village being fined $106k for short term rental.   The HOA took the owner to court, and the ruling was upheld by a Superior Court judge.   Cases like this should put notice to offenders that this issue is not going to go away and not be tolerated.