What Cities Have the Best Short-Term Rental Laws?

You’re familiar with the real estate adage “location, location, location.” But, location bares special significance when you’re looking for a place to invest in a vacation rental. Not only do you want to buy in a city that draws plenty of guests who are traveling for vacation, or even business, but you want to zero in on locations that have the most hospitable short-term rental laws.

Realtor Avery Carl, who specializes in selling homes in Tennessee and Florida to buyers who want to use the properties as short-term rentals, says it’s crucial to learn the regulations in a city before bidding on properties.

“True vacation rental markets—areas where people have been renting vacation rentals for decades, well before the dawn of Airbnb and Vrbo—are very safe investments with little short-term rental regulations,” she says. Carl points to destinations like the Smoky Mountains or Florida beaches, where cabins and condos have a tradition of being alternatives to hotels.

Meanwhile, many major cities are imposing stricter regulations, some banning short-term rentals altogether, Carl points out. Others require that short-term rentals also be your primary residence. If you are looking to buy in an area that has tightening regulations, you’ll need to make sure that you could convert your investment into a long-term rental and still be able to cover your expenses, Carl advises. 

If you’re looking to invest in a vacation rental, these 4 locations are not only buzzing destinations, but they also have laws that accommodate the vacation rental industry.

1. Gatlinburg, Tennessee

More than 11 million visitors flock to the Great Smoky Mountains each year to hike, go autumn leaf peeping, and witness the wonder of the fireflies that synchronize their flashing light patterns. Known as the gateway to the Great Smoky Mountains National Park, Gatlinburg 

was recently described as “shooting star of revenue” in the buy-to-rent investment model by Airbnb data and analytics company AirDNA. Mortgages are low in the area; and vacation rental revenue is high. Also helping drive the vacation rental market here are sensible regulations. Vacation rental property owners in Gatlinburg need to obtain a business license and pay 9.5% combined sales tax, 7% that goes to Tennessee and 2.5% is directed to Sevier County. Property owners are required to fill out a straightforward, one-page document, which asks about square-footage and how many bedrooms are in the property, in order to obtain a “tourist residency permit.” Unlike many other cities, there’s no requirement to submit more detailed documents, like floor plans or proof of notification to neighbors about your intention to use the property as a vacation rental.

2. Hilton Head, South Carolina 

With golfing, snorkeling, sea turtle, and dolphin watching trips, and fishing expeditions, this coastal South Carolina town has plenty of fun activities to fill up a vacation itinerary. Hilton Head draws 2.67 million visitors annually, and may are repeat visitors, giving vacation rental owners the potential to bring guests back year after year. If you’re new to vacation rental investments, Hilton Head may be a great place to dip your toes into the market. You’ll only need a business license from the town if you own more than one vacation rental in Hilton Head. Combined city and state sales tax is also fairly low at 7%. Some gated communities in Hilton Head, though, do have bans on short-term rentals. Prospective buyers should be sure to check out the current HOA rules and regulations and also inquire about whether there are any upcoming votes or discussions on the matter.

3. Vail, Colorado 

Colorado’s mountain towns, including Vail, have been marketing themselves as year-round destinations. While the skiing is great in Vail in the winter months, intrepid types can go mountain biking, hiking or enjoy an adventure park with ziplining and a mountain roller coaster in the warmer months. Vail has a streamlined application process and guide for vacation property owners, with owners signing an affidavit that acknowledges safety, trash, and noise regulations. Also, it’s a great idea to work with a property management company in this area as Vail does require a “local property contact” be within a one-hour distance of the short-term rental, available to respond to complaints. Short-term rentals here need to have a sales tax license. Combined sales tax rates in both East and West Vail are 8.4%.

4. San Diego, California

With an abundance of beaches for surfing and sunbathing and a bustling craft beer and culinary scene, San Diego is a draw for vacationers looking for a sunny escape. The city makes the short-term rental process seamless for property owners. Vacation rental owners here are required to obtain a “Transient Occupancy Registration Certificate” if they rent out properties to guests for one month or less and pay a 10.5% lodging tax on a monthly basis. The process can be completed online.

A final tip: When you’re searching for locations to buy a vacation rental property, be sure to ask about neighborhood and HOA regulations, too. Working with an experienced real estate agent and real estate attorney can help you find locations that are hospitable to short-term rentals.

While these vacation cities have particularly hospitable short-term rental laws, there are plenty more vacation destinations that are also great for vacation rental owners. The key is to review and understand the local laws before buying. You can also look at city council minutes, which are readily available online, to determine whether there have been recent discussion or proposed measures that would regulate short-term rentals.


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