Some automated analysis websites publish expected rental yields if renting on a short term basis. Some buyers look at nightly figures and underestimate vacancies, repairs, and headaches when guessing at annual net rental income. Other buyers think they can buy in states with strong pro-tenant laws and avoid problems by renting their unit or house as a vacation rental.
However, when contemplating purchasing a rental income property, it is dangerous to assume that it can be rented as a vacation rental. With condos, some homeowner’s associations prevent such rentals. Other homeowner’s association can institute a ban at any time. Some cities, particularly those in vacation areas where hotels have strong lobbying power, forbid short term rentals of homes and condos, at least in certain areas.
This article discusses how buyers bought outside of city limits to try to avoid prohibitions on short term rentals. However, lobbying took place to make even those areas inhospitable to vacation rentals.
Locals were being priced out of the rental market as more units were tailored to short term tenancies. There is an irony here. Many locals work for the tourist industry. With less tourist income coming in, there are fewer jobs available.
It is possible that all these cities that are working to “fix” the housing shortage may end up doing so just in time for the Fed to raise interest rates and cause the next recession and housing crash.
But the lesson here is that if rental yield or cap rate numbers only pencil out if you are doing short term rentals, caution should be exercised as you may soon find yourself unable to offer vacation rentals.