Are Vacation Rental owners Rich?

[Inquiring Mind]

Are Vacation rental (Short Term Rental) owners rich?

The Ludington City Building and licenses Committee seems to think that people that want to operate short term rental have unlimited funds as the committee stated at the October 30, 2019 meeting and I quote:

 

Sec 6-222 Penalty

The Committee discussed the current penalty fines for Municipal Civil Infractions. Currently the 1^st fine is $250 and the 2^nd fine is $500.  The Committee feels the fines need to be higher as these amounts are low compared to the amount of money these properties will generate for short-term rentals.

Sec 6-216 Fees

The Committee had previously discussed a $500 fee to apply for the license and if chosen then an additional $500 would have to be paid.  Each of these $500 fees are per unit, not per property.

I don’t know where they got their figures,here are some actual figures taken from an existing Vacation Rental. These figures are based on a single family property with a value of $150,000.00. Keep in mind that these figures do not include the initial investment to turn a monthly rental into a short term rental that will be in excess of $10,000.00.

I have used $200 per night rental with a $100 cleaning fee that seems to be the average in Ludington. The main rental period is from the first week in June to the first week in September or 12 weeks per year.

Income with a property Manager or self managing are the same except for management fees:                         Managing yourself:

Weekly Rental x 12 =    $18,000    30% management fee -  $5,400    Self - Air B&B/ VRBO 17%  $3,060 

cleaning + fees             $1,500                                                                                                           cleaning supplies          $   300                                                                                                                Lawn care $60 wk x 15  $   900                                                                                                  maintenance                 $2,000                                                                                                  Utilities  (yearly)           $3,000                                                                                             advertising                    $   500                                                                                               Insurance                      $1,000                                                                                                 Property Taxes              $4, 078                                                                                                Mortgage Pmt $700 mo. $8,400

TOTAL NET INCOME WITH A PROPERTY MANAGER -($9,078)          SELF MANAGING - ($6,738) 

                                                                                                                                                                                          Now add a $500.00 lottery fee to see if you get a permit and another $500 fee for the permit. The only way you can possibly break even is to have 2 rentals in one house so all the utilities would be combined. $2,000.00 for permits to the city to conduct a small business seems unreasonable to me.

I do agree that short term rentals could be very profitable if there was a longer season to rent but 12 to 15 rentals a year are not going to make anyone rich.

My question to the city is: are all current short term rentals including the condo str’s that are allowed now going to be required to pay the $500 permit fee each year and pay non-homestead property taxes? 

[Freedom Seeker]

You ask some very good questions, Inquiring, and point out examples that seem valid for not really being profitable to the average STR startup. When I read the suggested fees, my thought was "over control" in government. It seems that behind the government action in this process is to make it hard for the little guy to break into STR perhaps to offset any loss to the existing motel owners.

[XLFD]

Thanks for fleshing out the numbers and giving our readers a better understanding of the inherent problem of having the City skim an extra $1000 per unit off these vacation rentals.  I would add the analysis that if there are 50 more STR units in the City and tourism remains stable, not only will the existing STRs be less likely to fill during the lean periods of summer, but the expected return on the new ones will likely be less than the city's static model would indicate.  The added competition would also reduce STR rates naturally.  

[Willy]

Inquiring Mind

Do you have a link to the specific ordinance that covers this topic. Is the fine specific to rental property or to all civil infractions in general?

[Inquiring Mind]

Sec 6-222 states the current Penalty Fines are $250 first offence $500 second offense for all Municipal Infractions. This includes not mowing your lawn. The ordinance is the new proposed ordinance for STRs. It should be on the ludington government page but I couldn't locate it now, perhaps XLFD can locate it. The quote I made was from the Oct. 30 building and licensing meeting.