Over the past decade, the sharing economy has revolutionized the way we travel, lodge and eat. Sharing services such as Uber, Lyft and DoorDash have become ubiquitous in cities across the country. These business concepts have also disrupted the housing industry in some fascinating ways. Let’s assess the impact of the sharing economy in real estate markets throughout America.
Higher Home Prices
The sharing economy has significantly affected real estate in several urban areas. Due to limited housing inventory, local buyers are struggling to compete with real estate investors who purchase properties for short-term rentals to cater to tourists. Consequently, this trend is contributing to the rise in housing prices, making it challenging for ordinary residents to afford a home. To mitigate this issue, many communities have enforced regulations requiring short-term rental properties to be owned by local residents.
Commercial Rentals
Utilizing the principles of short-term vacation rentals, many real estate investors are leveraging the sharing economy to enhance the profitability of commercial office spaces.
A growing number of small businesses, entrepreneurs and freelancers are using co-working spaces instead of buying or leasing traditional offices. These fully furnished, well-equipped shared offices come with various amenities including utilities, internet access and even mailing addresses that elevate the professional image of startups. It’s not just small businesses, either; larger corporations are also using these shared workspaces for their remote or traveling employees.
B2B and Consumer Rental Lodging
An increasing number of organizations and individuals are relying on services like Airbnb for temporary accommodations. These sharing services are typically favored for short-term stays, providing an alternative to conventional hotels. Some are even using these services as substitutes for long-term apartment rentals.
While many real estate owners use Airbnb to generate extra income from unused properties or spare rooms, some real estate investors are earning millions from their properties.
Understanding Local Regulations
Although the sharing economy has brought profitable opportunities to the real estate industry, it may not be suitable for everyone. Property owners need to be aware that various cities have established regulations governing rental services, and the legal definition of a short-term rental can differ based on the county or city.
In addition to regulating the type of structure and length of stay, many local governments have imposed legal restrictions on short-term rental businesses. To prevent real estate investors from renting out entire units or properties as short-term rentals, a lot of cities mandate that local properties be owned by area residents. Conversely, some cities, such as San Diego, have banned all short-term rentals, while others classify them as “hotels” only allowed in specified areas.
Getting Expert Advice
Although it may cause disruptions in some cases, the sharing economy brings promising prospects to the real estate market. For investors, it can be a profitable way to increase ROI, as long as the property is located in an area that attracts tourists or business travelers.
For regular homeowners, this concept provides an opportunity to earn extra income and reduce the overall cost of their mortgage payments. However, to maximize these opportunities, it’s crucial for buyers to have a reliable ally who can educate them about the local laws and regulations that govern short-term rental properties within their communities.
While rules and regulations may differ, most cities and counties require that all buyers obtain, at the very least, short-term rental licenses and general business licenses. These applications usually require property owners to confirm that their properties comply with safety and health requirements, are up to code, and comply with local zoning laws. Owners are also typically required to notify neighbors that they intend to use their homes as short-term rentals.
With so much to consider, it’s important to work with an experienced real estate agent who can help you determine whether it will be profitable or even legal to use your property as a short-term rental.
