Is an Airbnb a good investment? Absolutely! Is an Airbnb a good investment in every US city? Unfortunately, the answer is no. Why? Some cities have serious Airbnb legal issues.
Many American cities have opened their arms to Airbnb investment properties. Others have slapped Airbnb investors in the face with many legal restrictions. Don’t just take our word for it. Hear it from a very reliable source.
The R Street Institute released a study examining the legal regulations of Airbnb rentals in US cities. They found that in some cities, regulation targets Airbnb properties in such a strenuous way that results in investors having some of the worst Airbnb rentals. Some cities take it down to another level, making Airbnb practically illegal.
Places With the Worst Airbnb Legal Issues
Here are the cities, all of which are far from the best location for Airbnb properties:
Los Angeles, California
LA is the perfect city for Airbnb, in theory. Tons of tourists, beaches, and entertainment seem like the perfect match for Airbnb, right? Unfortunately, it seems that city legislation has answered that question with a big NO!
One of the more concerning of LA Airbnb legal problems is its tax requirements. Airbnb investors in Los Angeles are required to pay a 14% transient occupancy tax for stays of 30 nights or less. Business licenses are also a must. While Los Angeles is not technically among the places where Airbnb is illegal, the folks at the R Street Institute argue that it is “practically impossible”. The report graded Los Angeles’s legal treatment of Airbnb with an F. Yikes.
San Francisco, California
San Fran is no stranger to Airbnb legal issues. The city is not an answer when asking “Where is Airbnb illegal?”, but it is not free of Airbnb legal problems. The Airbnb situation in San Francisco has upticked recently, but it is still far from adequate.
San Francisco makes registering an Airbnb property a huge headache. Investors must obtain a Business Registration Certificate and a separate Short-term Residential Rental Certificate. Licensing isn’t the only registration obstacle. Hosts must live in the Airbnb listing for 275 days a year, or 75% of the days the property is occupied.
Taxation in SF does not make the situation better at all. Just like the previously mentioned Californian city on this list, San Francisco enforces a 14% transient occupancy tax. The positive caveat, however, is that if Airbnb is the investor’s only method of renting out, this tax is not required.
Santa Barbara, California
Next up on the list is among the places where Airbnb is illegal (or “practically illegal” according to the R Street Institute report) is Santa Barbara. Santa Barbara suffers from similar Airbnb legal issues as its aforementioned Californian cities. The city enforces a transient occupancy tax and a business license to operate Airbnb properties. Just like Los Angeles, Santa Barbara received an F grade in the R Street Institute Roomscore report.
Among its unique, but still troubling, Airbnb legal problems revolves around land use. Santa Barbara legislation requires all residential rentals that are rented for 30 days or less to obtain appropriate land use approvals and permits.
Denver, Colorado
From the warm West Coast to the cold Mile High City, Airbnb legal issues exist and persist. Denver may not be an answer when asking the question “Where is Airbnb banned?”, although it could be. According to the Roomscore report, Airbnb in Denver is “effectively illegal”. It’s no surprise, then, that Denver received a failing grade in the report.
Taxes are a lingering issue for Denver Airbnb investors. A 10.75% Lodger’s Tax is imposed on short-term rentals. If a property is generating more than $500 in rental income, which to many investors is below their rental income goals, an occupational privilege tax must be paid.
Somehow, the Airbnb situation in Denver gets worse. Only primary residences can be rented out through Airbnb in the city. Absurd, we know. Don’t be surprised if some of the worst Airbnb rentals are located in Denver.
Atlanta, Georgia
Where is Airbnb banned? It isn’t in the ATL, but according to the Roomscore report, it is one of the places where Airbnb is illegal, or “effectively illegal”, to say the least. And of what seems to be a trend of the cities on this list, Atlanta received an F from the same report.
Atlanta’s Airbnb legal issues can be summed in two words: licensing and zoning. A business license is an absolute must for Atlanta Airbnb investors, along with the annual tax that comes with it. The business license isn’t the only one to worry about, a hotel license is in order as well.
The small bright side is that this license does not have an annual tax tagging along with it. Zoning considerations, which can be read more about here, are also a matter of legal concern for Airbnb in Atlanta.
New Orleans, Louisiana
Luckily, New Orleans is not one of the places where Airbnb is banned. Unfortunately, it is one of the locations described by the Roomscore report as “practically impossible” due to stringent legal restrictions.
Much like the other cities on this list, Airbnb laws in New Orleans have received an F from the Roomscore report. Some of the usual problems exist, like short-term rental licenses. New Orleans does have one of the rarer Airbnb legal issues, however, with zoning restrictions. More information on that can be found on Airbnb’s Help Center article about New Orleans.
New York, New York
Last, and definitely not least, in the list of cities with the worst Airbnb legal issues is New York. NYC is the first, and sometimes only answer, when asking “Where is Airbnb banned?”. That’s right, Airbnb is essentially banned in New York.
There is a slight caveat; an Airbnb property must be advertised for more than 30 days to be considered legal. This, however, is against the very nature of Airbnb as a short-term rental platform. The Airbnb situation in the city is complex, without a doubt. It seems it’ll remain this way for quite some time.
So, Now What?
If you’ve wanted to learn how to rent an Airbnb property in these cities before reading this, you probably don’t want to anymore. Is an Airbnb a good investment in these cities? No, but this does not mean that Airbnb is a bad investment strategy, it’s just that these cities contain Airbnb legal issues that can turn potential properties into the worst Airbnb rentals. What you should do is look for cities that have a good Airbnb investment capability.
Avoiding these cities with Airbnb legal issues would be a sound choice. Still, do not let that limit you from investing in traditional properties in these cities. Denver, for instance, may have Airbnb legal issues and is not the best location for Airbnb, but it is a top location for traditional rental income.
To learn more about Denver’s, and all the other mentioned cities’, investment capability, click on the headings of the cities, which will lead you to Mashvisor’s investment property city guides! Also, be sure to learn more about Airbnb legal issues through Mashvisor’s blog!