Key takeaways
- Santa Cruz has strict short-term rental permits and possible HOA restrictions, while long-term rentals have simpler regulations.
- Airbnb rentals in Santa Cruz average $404/night but with higher operational costs; long-term rentals average $4,900/month with fewer maintenance costs.
- Airbnb requires intensive daily oversight; long-term rentals have less frequent duties but can have management fees.
- The choice hinges on potential earnings, stability, time commitment, and community impact.
This blog was recently updated on Sept 22, 2023
Airbnb’s transformative impact on the rental landscape is undeniable. Spanning 220 countries and boasting a valuation of $94 billion as of September 2023, this platform has reshaped the face of travel lodging. By seamlessly connecting homeowners with travelers, it serves as a modern, affordable alternative to conventional hotel stays. Yet its influence extends beyond travelers. Many homeowners are gravitating towards Airbnb to maximize their earnings.
Santa Cruz stands as a testament to this trend. As one of the nation’s priciest rental markets with a burgeoning demand, it’s a hotspot for property investors. But the pivotal question remains: In Santa Cruz, should you align with Airbnb’s short-term appeal or opt for the stability of long-term rentals?
The legalities
Before deciding to list your property as an Airbnb, ensure it’s a legally viable option for you. Local and state regulations might limit or restrict your ability to rent out your property. New York, for instance, has strict regulations around platforms like Airbnb and VRBO.
Santa Cruz specifically operates under its Residential Short-Term Rental Ordinance:
- Homeowners must secure one of the limited 450 Short-Term Rental Permits. Due to high demand, there’s a waitlist, which comes with a $145 fee.
- All short-term rentals require a Transient Occupancy Tax (TOT) Certificate.
- Enrollment in the city’s Rental Inspection Service (RIS) is mandatory, and it comes with an annual fee.
Moreover, ensure you’re not in conflict with your homeowners association (HOA) rules. High-end neighborhoods, for example, often prohibit short-term rentals to maintain tranquility for permanent residents.
If you’re considering long-term rentals, the legal landscape is generally less cumbersome. Most cities have streamlined processes for converting homes to long-term rentals. In fact, some municipalities encourage homeowners to opt for long-term rentals over short-term. However, there are exceptions. Some cities necessitate registration for specific situations, like Section 8 or rent-controlled properties.
The financials
The decision to opt for Airbnb or a long-term rental can significantly impact your financial outcome. To guide you through this process, we’ve broken down the financial considerations for both.
Airbnb
Short-term rentals are generally more lucrative than long-term rentals. BnB Vestor data as of September 2023 shows Airbnb listings in Santa Cruz rent for an average of $404 per night, so assuming a 54% occupancy rate, that’s an average of $6,634 in revenue per month. On top of that, there’s the added advantage of being able to adjust your rent according to demand and seasonality.
However, short-term rentals cost more to operate compared to long-term rentals. The high turnover rate of short-term rentals requires constant maintenance and upkeep. Furthermore, the high expectations of travelers demand reinvestments to keep your property up to trend and in pristine condition. Thus, a few bad months can potentially eat away at your profits.
Long-term rentals
Long-term rentals, on the other hand, are not as lucrative compared to the former, but they offer stability. According to recent data, the average monthly rental cost of a 3-bedroom apartment in Santa Cruz as of September 2023 is $4,900.
However, long-term rentals generally have lower maintenance costs. They also require fewer updates since they have low turnover rates and less need for a constant facelift. Thus, you can keep more of the revenue as profits.
The management
Aside from the financial benefits and responsibilities, the management of both types of investments is also a big factor to consider.
Airbnb
The management of Airbnb properties can be quite intensive due to its high turnover nature. As a host, you’ll be responsible for coordinating check-ins and check-outs, addressing any immediate concerns of the guests, and ensuring the property is clean and stocked for the next booking. You also have to handle ongoing communication with prospective guests, manage the property listing, set competitive prices, and handle guest reviews.
Airbnb hosts often find themselves in the hospitality business, whether they intend to be or not. The quality of service and attention to detail you provide will play a significant role in the reviews your property gets, which in turn affects future bookings. Some hosts in popular tourist areas like Santa Cruz opt to hire property management companies or even enlist cleaning services to handle turnovers. While this eases the daily responsibilities, it also eats into the profits, ranging from 25 to 30% of the rent.
Long-term rentals
In contrast, long-term rentals have a different set of managerial responsibilities. Typically, once you’ve screened and selected a tenant, you’ll have a consistent monthly income and significantly less daily oversight. You won’t need to constantly monitor a listing, adjust pricing, or coordinate frequent turnovers.
However, long-term rentals come with their own challenges: routine maintenance, managing lease agreements, addressing tenant concerns, and ensuring rent is collected timely. If you’re not keen on handling these duties, you can always hire a property management company, like Poplar Homes, which costs only 6-12% of the monthly rent.
So, which investment type is best in Santa Cruz?
The decision between Airbnb and long-term rentals in Santa Cruz ultimately hinges on your investment goals, the amount of time you’re willing to commit, and your risk tolerance.
Risk and rewards: If you’re in the game for higher potential earnings and are open to bearing the brunt of fluctuations in tourism, Airbnb might be your best bet. The potential for revenue, especially during peak seasons in Santa Cruz, is significant. However, it’s crucial to understand that this comes with the risk of vacant nights and potentially higher operational costs.
Stability and commitment: If you’re looking for stability, predictability, and a more hands-off approach, then long-term rentals would be more appropriate. While they may not generate as much revenue as short-term rentals, the steady income stream, combined with the lower operational cost, can provide peace of mind.
Your involvement level: Consider the time and effort you can dedicate to the property. Managing an Airbnb requires more active participation, almost akin to running a business. In contrast, with long-term rentals, once everything is set up, your involvement can be minimal, especially if you have a property management company in place.
Community considerations: It’s also essential to consider the broader impact on the community. Cities like Santa Cruz, with its limited housing supply, can face challenges when a significant proportion of properties are turned into short-term rentals. This can reduce available housing for residents, driving up rental prices. By opting for long-term rentals, you contribute to the community’s housing stock, providing homes for those who live and work in the area.
Final Thoughts
No one-size-fits-all answer exists. Each investor’s circumstances, goals, and preferences are unique. By understanding the nuances, legalities, financial implications, and management commitments of both options, you can make an informed choice tailored to your situation.
Whatever you decide, always strive to be a responsible property owner, understanding that every choice impacts not just your bottom line but also the fabric of the Santa Cruz community.
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