Question: We own a rental home in Scottsdale that is not in an HOA community. We have had a good tenant for the last two years who pays us $2,000 a month rent. We have been reading so much recently about short-term rentals in Scottsdale. If we refuse to renew the lease with our good tenant, and we convert this rental home to a short-term rental home, what are the advantages and disadvantages? What if the law is changed by Scottsdale to require minimum 6-month leases? Will we have lost our good tenant for nothing?
Answer: The Arizona state legislature three years ago passed SB 1350 (now A.R.S § 9-500.39) that restricts Scottsdale and other towns and cities from regulating short-term rentals. Although the state legislature amended SB 1350 last year to basically allow towns and cities in Arizona to regulate short-term rentals used as “party houses,” no other significant amendments to SB 1350 are anticipated. A constitutional amendment by the voters to repeal SB 1350 could take years. Therefore, if you convert your rental home to a short-term rental, you should be able to significantly increase your rental income from the current $2,000 a month to up to $20,000 a month. For example, in late 2017 a California investor paid cash for a relatively modest home near Old Town Scottsdale. In 2018 this home was a short-term rental rented out almost every night for $20,000 a month net rental income to the California investor ($240,000 annual net rental income– $300,000 gross rental income less $60,000 management fees/repairs/maintenance). Short-term rentals have higher management fees and higher maintenance/repair costs. The owner of a short-term rental at any time, however, can easily convert the short-term rental to a standard rental of one year or more. The disadvantages of short-term rentals can be deteriorating neighborhoods and less affordable housing for families.