Are You Considering Operating a DC-area Airbnb

Question: What are the local laws governing short-term rentals in the DC area?

Answer: I hope you had a great Fourth of July holiday weekend! Some of you may have stayed at an Airbnb this weekend and come back with grand plans of buying your own investment property to rent out.

If you’re considering purchasing an investment property for short-term rentals (STR), like Airbnb, one of the most important things to research early on are the local laws governing them. With all the tourism to the DC area, a short-term rental property can be quite lucrative, but most local governments in this region have laws in place to prevent properties from being used exclusively for short-term rentals and thus limit your expected returns.

It’s also important to know that short-term rental restrictions from Homeowner, Condo, or Cooperative Associations take precedent over any local laws and it is extremely rare to find an Association that allows for any rental period less than 6 or 12 months.

Short-term rentals are defined as properties rented out for less than 30 consecutive nights to the same renter.

I compiled a list of the local STR laws in the greater DC area and summarized them below with links to the government websites where the information is detailed:

  • Arlington County: Allowed in units used by the owner as his/her primary residence (the owner occupies the unit at least 185 days of the year). Cannot use detached accessory dwellings for short-term rentals.
  • Washington DC: Unlimited rentals if the property is owner-occupied during the rental (rental is for partial use of the home), limited to 90 nights of rentals per calendar year for properties that are not owner-occupied during the rental (renter has full access to the entire property). DC also requires an assortment of licenses, certifications, and fees.
  • City of Alexandria: Unlimited rentals during a calendar year and no restrictions on owner occupancy. Properties can be owned and used solely for short-term rentals. City of Alexandria charges an additional 8.5% Transient Lodging Tax for properties that sleep 4+.
  • City of Falls Church: I could not find any official guidance from the City of Falls Church on short-term rentals and am led to believe there are not currently any restrictions or additional taxes
  • Fairfax County: Limited to 60 nights of rental bookings per calendar year, with no reference to owner occupied vs unoccupied. Detached accessory dwellings cannot be used as STRs. No more than six adults can stay in a single property. Additional Transient Tax charges apply.
  • Loudoun County: It seems that Loudoun County is still drafting their short-term rental policies, with the last official write-up I found referencing a February 2022 public hearing and draft amendment. The County’s zoning currently does not allow short-term rentals, but a hold has been put on enforcement until a policy can be finalized.
  • Montgomery County: Limited to 120 nights of rentals if the home is not occupied by the owner during the rental and unlimited rentals if the home is owner-occupied during the rental. No more than six adults can stay in a single property.
  • Prince Georges County: Limited to 90 rental nights per calendar year if the property is not owner-occupied during the rental and limited to 180 rental nights per calendar year if the property is owner-occupied during the rental.

Owning and operating a short-term rental can be very lucrative, but it’s important to understand that residents and local governments are still in the early stages of defining how their communities want to support or restrict STRs. Before making a significant investment in a property for STR income, get fully informed on current laws/taxes, research the mood of residents and politicians on STRs, and incorporate the risk of law/tax changes into your investment decision.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate | @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Impact of Coronavirus on the Real Estate Market, Part 5

Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?

Answer: I hope this column finds everybody in good health. If you need to replenish your cooking oils and haven’t tried The Olive Oil Boom before, I highly recommend it. It’s a local shop in Courthouse that my wife and I love. My personal favorite is the Harissa olive oil.

If you have some local favorites that you’d like to help stay in business during tough times, please give them a shout-out in the comments section and note a personal favorite product/dish!

Financial Confidence Poll

Buyer confidence drives real estate demand, so I’d like to do a reader poll this week to measure the confidence of Arlingtonians. Thanks for participating!

Question: How long do you expect the effects of the Coronavirus pandemic to negatively impact your personal finances?

Arlington/Regional Market Update

Regionally and locally we’re seeing the pipeline of new inventory dry up and sellers lose confidence. The two charts below reflect market activity in Arlington over the past seven days (left) and seven days prior to that (right). While the total Coming Soon and New Active for each seven-day period is almost identical, the Coming Soon pipeline was cut in half. You’ll also note huge increases in the number of price reductions and properties pulled off market (Temp Off, Withdrawn, Canceled, and Expired).

Demand is dropping, but homeowners are experiencing it in different ways. For example, the markets that were hyper-competitive prior to the COVID-19 crisis, such as the $600k-$900k single-family starter home market that was seeing double digit offers, are still getting strong offers, and in some cases, multiple offers. For those homes, even a 60-70% decline in demand means a few offers instead of 10+.

I inquired on five homes this weekend for two separate clients. Each was a move-in-ready detached single-family home in Arlington, Falls Church, or Alexandria priced from $695k-$875k. All five had at least one strong offer, four were expecting multiples, one had two pre-inspections scheduled and one got seven offers.

However, the number of price drops and listings being pulled from the market shows that many homeowners are experiencing something different. If your home was likely to get one strong offer before the Coronavirus lockdown, a significant drop in demand can easily mean no offers and a longer wait for the right buyer to materialize.

To gauge the odds of a successful sale (quick sale, at/near asking price), homeowners should be conscious of the profile of the buyer(s) most likely to purchase their home and try to understand how their motivation and financial security has been impacted by COVID-19. For example, dual-income families are likely feeling more financial security than single-income buyers. Buyers with kids are often more motivated because they likely have fewer alternatives than somebody buying a 1-2-bedroom condo who can more easily find a comparable rental apartment until the economy is back in order. Further, families with kids are generally buying with a longer ownership horizon and thus able to outlast whatever economic recession/depression is brought on by the virus.

Past Sever Days (Arlington)

Seven Days Prior (Arlington)

Are Prices Dropping?

Although some homes are still selling for their pre-COVID prices (which shouldn’t be happening, in my opinion, given the amount of uncertainty/risk in the market), I suspect that most homeowners are settling for a few percent less than what they would have pre-Coronavirus. You can also argue that they’re taking an even greater loss than what they would have gotten in the peak spring market (right now) had Coronavirus never been a factor.

I think that for most of the DC Metro, that’s the appropriate discount at this time, considering what we do and do not know about the future of the national/regional economy.

The price drop that most people are worried about or looking forward to, depending on which side of the transaction you’re on, is a double-digit drop like we saw during the Great Recession 12 years ago. There are myriad inputs that factor into real estate prices, but the simplest is supply and demand. If you’ve been paying attention to real estate in Arlington or the DC Metro, you know that we’ve suffered from a historically low supply of homes for sale, driven by both a lack of new inventory and high demand.

Econ101 tells us that in order for there to be a significant price drop, demand will have to recede substantially more than supply. There’s no doubt that an on-going economic shutdown will significantly reduce demand, but if changes to lending practices over the last decade and financial support from the government allow people to keep their homes, inventory will likely plunge as well. So long as inventory and demand are dropping by somewhat similar amounts, we may not see the type of dramatic price drops we saw in 2008.

To highlight just how bad the supply is around here, I pulled charts showing the months of supply in Arlington, Northern VA, and the DC Metro over the last 10 years. Note that most economists agree that a market is fairly balanced for buyers and sellers when there’s ~6 months of supply.

I also added a chart showing the corresponding change in median sold price for Arlington during that same 10 year period.

https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=60&ftid=2&fid=1000&gty=120&ltid=4&lid=51013&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Months of Supply for Arlington County
https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=6&ftid=2&fid=1000&gty=120&ltid=4&lid=51013&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Median Sale for Arlington County
https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=60&ftid=2&fid=1000&gty=120&ltid=2&lid=1006&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Months of Supply for Northern Virginia
https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=60&ftid=2&fid=1000&gty=120&ltid=2&lid=1034&gid=2&cc=0000dd&sid=0&mid=0&tt=2&mode=4
Months of Supply for The DC Metro

If you’d like to discuss buying or selling strategies in this market, don’t hesitate to reach out to me at Eli@EliResidential.com. Be smart, be careful, be strategic. And stay home!