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HMW #153: What do I do if my town changes its STR rules?

alan corey insurance new investor property management short-term rentals tax loopholes timing the market May 15, 2024

Read Time: 4.5 minutes

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Congrats, your short-term rental (STR) is printing money and everything is going dandy until...your town outlaws owning and operating vacation rentals. What do you do?

You have 3 options about how to use your illegal vacation rental now:

  • Sell it
  • Turn it into a primary or second home
  • Turn it into a mid-term or long-term rental

What is the right move?



No, that's not how real estate works. Let's just pick one option here. One will definitely make the most sense for your situation. 


1. Sell your Airbnb


The good news is that your home is probably in above average shape or in a great location in order for it to have been a successful vacation rental. The bad news is that your local market is about to get flooded with these perfectly located properties in A+ condition that also come fully-furnished when everyone looks to sell at the exact same time.  

This means a huge supply will hit the market at once and probably earn you less than you want when you go to sell. If you prefer this route, I (Alan) would recommend going to market early and with a very attractive price. If you find yourself i this situation, selling fast is going to be more important than selling for top dollar.




Me hurry? Oh you mean, with the other options? Sure, let me get to it as time is indeed money.


2. Turn it into your secondary (or primary) home


In the time before making money from vacation rentals were a thing, people just had secondary homes. They were furnished and often in a great location and can offer some tax benefits with a classification as a second home instead of it being a rental property.

The IRS lets you use secondary homes this way: you must use the home as your personal home for whichever is greater: 14 days a year or 10% of the days you have rented it out to others (as a mid-term rental, see below.)

Insurance should be lower as well with this re-classification. If you don't like that, just move into the home as your primary and rent out your old primary. Easy-peasy.




Appreciate it. One more option for ya!


3. Pivot into a mid-term or long-term rental


Typically the new anti-Airbnb laws are banning homes from being rented for less than 28 days. However, there are many guests looking for a furnished month-long rental or longer.  

Yes, you charge less for a longer term stay but you also have lower turnover. It's now having solely seasonal renters, or traveling nurses, in your place will probably create less wear and tear on your home.

Or alternatively, go all out and sell your furniture and make it a good old-fashioned unfurnished long-term rental. As long as it still cash flows, you have the benefit someone is paying off your mortgage on a great property. 

Bonus: your property management fees should cut in half from 20-25% for short-term management to around 10% to long-term management. You'll also have better terms and options with refinancing a property that is being used as a long-term rental as it's considered less risky. So, take advantage of this as well!



It's okay! You didn't know becuase you have been in short-term rental owner mode and didn't have to explore these things. That's why I'm here to help you make the pivot. But you have three solid options for you, and none of these options involve freaking out.



I've been doing this for awhile and recognize the patterns. You'll get there eventually. Good luck!


In other words:

  • Laws have changed in other cities and those owners survived
  • You still have a great asset in a good location, make it cash flow in a new way
  • Freaking out is natural, but make it a temporary thing with a quick pivot in a new direction

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