Short Term Rentals

The purpose of this blog is to provide my opinion on subjects that are real estate related.  These are not the opinions of my industry nor my broker.  This subject in particular really hits close to home for me, so I decided to share my story.  

First, a little back story, three of my grandparents were entrepreneur’s.  The fourth worked at a paper mill. I learned first-hand how a small business can benefit a family and I also saw the benefit of a daily, steady, blue collar job. As a child, I worked in the fields of my maternal grandparent’s farm. I only lasted a couple days and I hated it.  96 degree weather with 1 million percent humidity was too much for me.  Basically, I was allowed to work at the family owned gas station instead.  All the while, watching my maternal grandmother make quilts during the downtime.  As I got a little older, teenage years, my paternal grandmother let me work in her video store.  She also owned the burger joint next door. 

Here’s where things change a bit.  My paternal grandfather taught me how to grow a garden and I learned the benefits of hard work that he passed to us from his experience of 35 years working at the paper mill.  It’s true, a single career/industry, steady bi monthly paycheck, and insurance benefits can benefit a family in a completely different way. I also saw both my mother and father choose these types of careers rather than be entrepreneurs themselves.

After graduating college, I became a blue-collar worker of sorts.  I started as a flight attendant for a commercial airline, then proceeded to private jets in the same career field and eventually became a flight attendant trainer.  With my identity fully formed as a “worker,” I developed back issues and decided that to succeed, I must become some sort of entrepreneur.  Missing work due to an injury caused me to fear for the longevity of my job.  I lived in constant fear of being fired and quite honestly, I was way to opinionated.  Recently someone referred to me as an “investor”.  I can’t even describe the way that affected my emotional state.  I had never once thought of myself this way.  That really put things into perspective for me in relation to this blog, because I understand the lack of empathy that can be associated therewith in.  

Here’s my two cents:

Short Term Rentals and San Diego County

Short Term Rentals offer many benefits to home owners.  It allows for an increase in money making opportunities for many and I feel it provides a sense of community responsibility for many hosts.  I personally have seen benefits from using these types of rentals within my own business as an owner of three rental properties. Two are short term rentals, 1 is a long-term rental.

As a small business owner, I’ve been able to hire employees, meet renters from all over the world, and offer tips on great local restaurants and businesses.  I’ve received my license from the city to host these properties and I pay the appropriate state and city taxes, I also log the income on my yearly taxes. The reason I chose to turn two of my rentals into short term rentals rather than traditional 30 days or more leases is because of past neglect and other issues with past tenants.

I do also understand that my rentals may cause unwanted activity in the neighborhoods where I own.  As a member of two HOA Board of Directors, I have filed and listened to complaints against my own units.  Both after approaching the board of directions for a trial period   Citing too many people coming and going, loud noises at night, and parking.  Since the program that I use for my short-term rentals is a peer-to-peer based system.  I am able to log these complaints against the renters and notify other homeowners who participate in the program that there were concerns.  Realistically there is a system of checks and balances in place with these rentals, both provided by the city and provided by the programs I participate in.  Recently I even toured a for sale multi family unit that had been basically set up as a hostel.  

I do also understand that short term rentals increases tax revenues, uses extra city resources such as water, sewage, and trash. This strain on resources can effectively damage a community and also decrease the amount of current available rental units in my community. Such is capitalism and a free based trade market. But should I be punished as a responsible homeowner and business owner for the lack of my municipality refusing to innovate?  I truly feel that this is what is happening as technology outpaces legacy systems.  First it happened to the airlines, next it happened to automobile manufacturers and now, cities and governments.  

With all that being said, many industry leaders in real estate are holding info sessions for buyers/sellers/renters/investors.  Please see the below info from Tim Talsma, Mortgage Loan Officer of PNC Bank.

Here’s a rundown on what was covered

Included below is 1) a link to the City’s website, 2) a summary of what the recent law entails and 3) the interpretation of the situation from our speaker on Friday, Jonah Mechanic of SeaBreeze Vacation Rentals.

1       First off, here’s the link to the City of San Diego’s website addressing Short Term Rentals: https://www.sandiego.gov/short-term-residential-occupancy

2       Summary of New STRO Ordinance

On July 16, 2018, in a 6-3 vote, San Diego City councilmembers Chris Ward, Myrtle Cole, Georgette Gomez, Lorie Zapf, Barbara Bry and Mark Kersey voted to restrict short term rentals to primary residence only with a maximum of 6 months of renting.

The ordinance still requires a second reading before the City Council, after that Mayor Faulconer will have 10 days to either sign it or veto it. If he signs it will go into effect a month later, but the full license requirements in the ordinance won’t go into effect until July 1, 2019.

It should also be noted that the Coastal Commission has to approve the ordinance for coastal zones.

The new rules will create the City's first license-based system to manage the rentals, charge cost-recoverable fees to administer licenses and enforce code violations, hire staff to address complaints and charge a nightly fee that would go into a fund to help affordable housing projects.

For ten years the City Council has been deadlocked on which way to go with STROs, but last month Mayor Faulconer proposed a compromise that allows a host a maximum of two licenses; one for their primary residence and one additional license for a secondary residence. 

Mayor Faulconer listened to public feedback and issued a memo saying that operators of short-term rentals in Mission Beach that have acted in good faith by previously registering and paying taxes should continue doing business as long as they adhere to the new registration rules and good neighbor policy. He added that Mission Beach operators should now be limited to the same license restrictions as the rest of the city. 

The City Council agreed and amended Mayor Faulconer’s proposal keeping with the two license rule even in Mission Beach.

The City Council left the rules related to registration, the good neighbor policy, enforcement and the affordable housing fee largely unchanged.

All hosts are required to:

·        Register with or be licensed annually by the City

·        Secure a Transient Occupancy Tax (TOT) certificate

·        Pay TOT and the Affordable Housing Impact fees monthly

·        Obtain a Neighborhood Use Permit for dwellings with four or more bedrooms

·        Advertise a STRO license number on all advertisements

·        Comply with “Good Neighbor” policy, including posting local contact information on property

·        Collect and maintain detailed records on each STRO transaction for a period of three years

All platforms are required to:

·        Provide notice of the STRO and TOT requirements to each host prior to their listing

·        Collect TOT and Affordable Housing Impact fees at the same time rent is collected

·        Ensure only licensed or registered hosts are using the booking service on the hosting platform

·        Collect and maintain detailed records on each STRO transaction for a period of three years

ENFORCEMENT, COMPLIANCE AND NEW ONLINE TOOL FOR COMPLAINTS

A new team of police and code enforcement agents will be put in place working nights and on the weekends. 

Licensing and registration will interface with a City database and complaints will be vetted through a hotline and mobile application.

Enforcement is based on an inter-departmental strategy that includes the Code Enforcement Division, the City Treasurer’s Office, the City Attorney’s Office and the San Diego Police Department (SDPD).

The City issued the following list of changes that will be made. The enforcement program will:

·        Maintain a database of all licensed or registered STRO locations within the City Treasurer’s Office that will provide information to the SDPD.

·        Issue notices of violations, administrative citations, fines and revocation of licenses.

·        Create a STRO Code Enforcement, SDPD and City Attorney team for proactive enforcement in the areas with most frequent violations. The team will work evenings and weekends to target disturbances.

·        Monitor websites to ensure hosts are paying TOT; violators will be reported to the City Attorney.

·        Receive complaint calls 24-hours per day, seven days per week; an online portal will be created to report violations.

·        First notice of violation is considered a “warning”

·        Second notice of violation may result in citation

·        Third notice of violation within 12-month period may result in revocation of STRO permit

SUPPORTING AFFORDABLE HOUSING

The proposal also includes a new Affordable Housing Impact Fee of $2.73 (home share) to $3.96 (whole home) per rental night, paid for by hosts. Implementation of the fee is expected to generate funding for the Affordable Housing Fund, which is administered by the San Diego Housing Commission and is used to pay for affordable housing-related projects. 

3      Interpretations from Jonah Mechanic of SeaBreeze Vacation Rentals.  His personal comments/opinions included:

·        The current ordinance set to go into effect July 1, 2019 will likely be challenged legally by those opposed to new regulations

·        Class action lawsuit most likely scenario-meaning current ordinance will be delayed and restructured to accommodate both sides of debate on STRO

·        Coastal Commission must approve/adopt for coastal zones (Mission Beach, Pacific Beach, La Jolla, Ocean Beach, Point Loma)

·        Coastal commission typically favors no “net loss” in total rooms available

·        Residential, Multi-family & Commercial zoning affected by new ordinance

·        Hotel lobby/Unions were financial backers to push new ordinance through

·        ShareSanDiego.org is organization opposing new ordinance (Vacation rental companies & rental property owners)

Tim Talsma

Mortgage Loan Officer

San Diego Branch

NMLS #1518165

PNC Bank

591 Camino De La Reina Ste 928. San Diego, CA 92108

(c) 619.634.9822| (o) 619.209.6737 | (f) 833.651.0865

tim.talsma@pnc.com

pncmortgage.com/timtalsma