Editorial by John Banczak, Co-founder and Chairman, TurnKey Vacation Rentals
It would be virtually impossible for anyone involved in the sharing economy or vacation rental industry to be unaware of the increasingly complex and growing body of government regulations. Short-term rentals are a very attractive lodging solution for families and groups, and improvements in both the ease of finding and booking them over the past several years have enabled more and more travelers to take advantage of them. The increase in popularity has come with increased scrutiny from local governments as well as from lodging alternatives like hotels or B&B’s which view vacation rentals as competition.
Local governments and the American Hotel and Lodging Association (AHLA) presented recently at the FTC Sharing Economy Workshop made fair points that virtually all professional vacation rental property managers agree with:
· Vacation rentals should be a positive influence in the community
· They should pay the same type of taxes any lodging provider pays
· They should be licensed and regulated to promote these goals.
What Are Illegal Hotels?
The AHLA uses the phrase “illegal hotels” in a lot of situations. The origin of this phrase seems to stem from large apartment buildings in major metro areas that have been converted to handle short-term rentals. They often resemble hotels in just about every way – multi-story buildings with multiple units per floor, elevators, and a single investor/owner. The AHLA defined them as “individuals or companies operating multiple properties as a business.” While we believe the AHLA understands the difference between a true “illegal hotel” and a traditional vacation rental manager like Wyndham for example, there is some concern that the general public does not.
The “illegal hotel” definition more and more often is starting to be loosely applied to the traditional vacation rental management industry, which is entirely different from a metro-area illegal hotel. Unlike an illegal hotel operator, traditional vacation rental managers do not own units at all – they provide services to individual home owners much like any local service provider.
The decades-old vacation rental management business can be thought of as having two broad categories. The first are Resort Managers (RMs) – folks like Wyndham, Marriott, Westin for example that might manage a vacation rental structure that resembles a resort or hotel, and may have individually or corporate-owned units. The second category are Owner Service Providers (OSPs) – folks like TrueGreen, Lawnlove, America’s Swimming Pool Co, Merry Maids, TurnKey Vacation Rentals, Evolve, Handy, ARS, Paypal, Square, HotSpot Tax, even Wyndham in many areas, and thousands of small business across the country that provide some type of service for an individually owned primary or secondary home. OSPs help most vacation rental owners in some aspect of the process (such as a housekeeper, electrician or lawn service).
Should an individually-owned, single-story, single-family home rented for part of the year be required to have the same type of sprinkler-system, earthquake reinforcements, and health-code inspections as a thirty-story hotel in downtown San Francisco that has multiple restaurants and event catering? Few would agree. But should it pay the same taxes and not be a nuisance to neighbors? Absolutely.
Does a two-hundred unit, twenty-five story apartment building in Manhattan owned by a REIT seem more similar to the twenty-five story hotel across the street than it does a stand-alone single-family home in Austin, TX? It sure does, and the AHLA would have a good argument that that the fire code of the hotel and the apartment building in Manhattan should be similar, while the fire code on the single family home should not.
Do Resort Managers with multi-floor/multi-unit structures seem a lot like hotels? They sure do – many are owned by the same hotel companies represented by the AHLA. Does an OSP that helps an individual home owner take care of their property in some way resemble an illegal hotel? No, individually owned homes whether rentals or not hire all sorts of OSPs to help maintain their property.
Professional Vacation Rental Managers are Owner Service Providers (OSP), not Illegal Hotels
A traditional, professional property manager doesn’t run illegal hotels, they are an OSP that may provide a few focused services to owners, or they may provide a wide range enabling an owner a single point of contact for most of their needs. The easiest way to understand what traditional managers is to compare three examples of similar properties in an average coastal community. The first owner does everything on his own, the second owner uses a couple different OSPs, and the third has hired a full-service professional property manager to be their single point of contact. Each home is a single family residence, should have the proper permit to be a vacation rental and should pay all transient occupancy taxes due.
Our first example owner – Joe – owns a three bedroom home a couple blocks from the beach. Joe is retired and spends about four months a year at his vacation home. His primary residence is a three hour drive away. Joe manages most everything on his own – he has listed his home on VRBO since 1999, handles all of his email inquiries, phone calls, takes payment in the mail by check or online through Paypal, and serves as the guests only contact point. He contracts out to local cleaners or course, has a local lawn service, a pool service, a plumber and electrician he uses, and a contractor for larger repairs. He runs his own finances and is responsible for paying his own local taxes each month. He keeps things like spare sheets on site, extra lightbulbs, and has guests bring their own amenities like toilet paper, shampoo, etc. For the most part the rental runs smoothly, save for the occasional instances when Joe’s not available to answer the phone in an emergency, or there is a problem with the quality of housekeeping or pool service. Joe has plenty of time on his hand to handle all of the scheduling and has always been more of a do-it-yourselfer.
The second owner – Susan – owns a three bedroom home right next door to Joe. Susan spends less time at the home as Joe, living a couple hours flight away. Susan is an EMT and cannot be reliably available to answer emails or phone calls so he contracted with Evolve Vacation Rentals – a professional service that lists his property on VRBO, provides 24/7 phone and email support, and handles payments from guests. Susan likes that guests always can reach someone and he doesn’t have to worry about sleepless nights. She also contracts with Hotspot Tax to handle all of her tax filings. She’s always used H&R Block to do her taxes, and he likes the idea of a professional filing each month so it is accurate and verifiable. Susan uses the same local lawn service and pool company as Joe, but has a different housekeeper that she schedules himself, and her own plumber and electrician. She’s looking for a new general contractor as his recently moved out of town. The rental runs smoothly, save for the occasional issues that arise when the plumber is busy or the old general contractor couldn’t be found. Susan doesn’t mind doing a little work now and then, but feels that paying for phone, email and tax service is well worth-it.
The third owner – Fred – owns a three bedroom right next door to Joe. Fred uses the home just as much as Susan, and lives in the same hometown as Joe. He plans on retiring there to live full-time eventually. Fred used to manage his home on his own, but got promoted to a regional sales rep and is on the road most of the week with no time to schedule any of the services. Fred started using Beachwise Vacation Rentals as his OSP. Beachwise acts as a single contact for owners, providing a VRBO listing, phone and email services, and payment handling like Evolve does. Beachwise uses the same housekeeping company, electricians, and plumbers as Joe, but does all the scheduling of them so Fred doesn’t have to. Beachwise also provides regular inspections of the home and keeps basic supplies on hand for renters like toilet paper, shampoo, garbage bags and paper towels. Beachwise handles things like tax payments, they even verify each guest’s photo ID, put digital locks on the doors for added security, and hire a local private security patrol on weekends and during big events. Fred likes having one local point of contact – he is busy at work, and feels better having someone manage all aspects of his home – after all, he spent years saving enough money to afford a second home and wants to make sure it is well looked after.
Each of these home owners has chosen a set of OSPs that work best for their own situation. Whether a home owner is the do-it-yourself type, or they want to have one single point of contact – the combination of OSPs doesn’t change the characteristics of their homes in the community. The homes are identical, all providing the same type of rental to guests. Each home owner is free to switch their plumber, housekeeper or electrician if a newer, better, or less expensive provider comes along. Competition among service providers is strong in the USA and owners benefit from that competition. Beachwise, a single point of contact OSP simply bundles up services for owners that need more convenience.
The mere bundling of services however doesn’t change the home itself, nor does this bundling of services imply that full-service managers like Beachwise are running illegal hotels in their area.
OSPs vs Illegal Hotels
We doubt that the AHLA’s intention is to group traditional full-service professional managers into the same category as illegal hotels. We would urge them to clarify this position. Making it difficult to bundle services for home owners, or reducing competition among service providers wouldn’t do anything to curb the type of illegal hotels mentioned in the larger metro areas. It would only serve to hurt the hundreds of thousands of second home owners.
Professional property managers have been providing bundled owner services to individual owners for decades in a thriving, competitive local marketplace serving as a valuable OSP to almost half of all vacation rental home owners. We hope that the all of those discussing the issues in the sharing economy make it a point to fully understand that traditional vacation rental managers are not running illegal hotels, and to further define the type of lodging that has become problematic.