The Definitive Guide to Buying A Short Term Rental in Los Angeles
Across the United States, the housing market is facing the effects of rising interest rates pushing mortgage rates up. As borrowing becomes more expensive, the demand for houses reduces due to decreased affordability.
Even still, the Los Angeles housing market has proven to be resistant to such challenges. While there’s been a marked fall in home sales in most markets in 2020, that’s not the case in Los Angeles. In fact, data shows that it’s thriving with the following notable trends:
- Declining inventory
- Rising prices
- Reduced time on market (from 50 to 36 days)
According to data, the median price of houses in Los Angeles has risen by 11.2% from Feb 2021 to Feb 2022. This has seen prices reach $945,000 from $850,000.
So, if you’re looking for investment properties, Los Angeles is an appealing market. However, another trend dominating the housing market is short-term rentals. So, while you wait for your property to increase in price, you can cash in on the influx of short-term renters in Los Angeles.
Overall, the short-term rental space in the country is growing, and listings are expected to increase by 20.5% in 2022. This is coupled with a rise in demand of about 23.4%. Considering Los Angeles ranks high among the cities with a thriving short-term rental market, you’ll want to cash in on this growth. Besides, it does not hurt to have a property in LA should you want to visit and enjoy its beaches and lifestyle.
As you prepare to venture into the STR market, it’s important to note that it has some unique elements. For instance, unique regulations govern this niche market, and they vary among the cities. Therefore, for you to enjoy the highest return on investment possible, it’s vital to account for all these factors as you choose an investment destination.
In this article, you’ll find a definitive guide to buying short-term rentals in Los Angeles and the best cities for investing.
Top Locations for Short Term Rentals in the Greater Los Angeles Area
There are several areas in Los Angeles where setting up a short-term rental can be profitable. These include:
1. Los Angeles
Along with being one of the most populous cities in the US, Los Angeles is also popular for being home to Hollywood and the rich and famous. It also has great weather and attractions such as Venice beach. As a result, the city attracts millions of tourists each year.
In recent years, the city has also become famous for short-term rentals, thanks to the continuous flow of people. With rental service companies popping up to capitalize on this market, the City implemented regulations on short-term rentals in 2018.
These regulations came into effect in 2019 and are designed to ensure hosts are responsible. Parties subject to comply with the home-sharing ordinances include hosts and hosting platforms. Therefore, for you to legally partake in home-sharing activities, you’ll need a valid registration number in the rental listing. Otherwise, you’ll be liable to daily fines.
Along with providing a legislative framework, the regulations also serve to ensure housing in Los Angeles remains affordable. Without regulations, residential apartments will be easily converted into STR units. In so doing, the rental stock will reduce and trigger a rise in rents.
As a host, you’ll be required to follow all the regulations of the Home-Sharing Ordinance (CF 14-1635-S2). They are as follows:
- Register as a host with the city for a Home-sharing permit for $183 annually
- You are only allowed to register one property per city as a short term rental operator
- You can only register your primary residence (you lived there for 6+ months)
- If you need to rent out your primary residence for 120+ days annually, you’ll need to apply for ‘Extended Home-Sharing’
- Home-sharing registration numbers should be included in all listings
- Properties subject to the Rent Stabilization Ordinance cannot be used for home-sharing
- Home-sharing permits are only valid for a year from the date of issue and must be renewed every subsequent year
- Transient Occupancy Tax (TOT) of 12%
Getting Your Home-Sharing Permit in Los Angeles
Registering for a home-sharing permit is a fairly straightforward process. You’ll need to provide photo identification such as a driver’s license, passport, or state ID. This should be accompanied by at least two documents for the property to prove that it’s your primary residence. Such documents include:
- A current valid California vehicle registration certificate
- A current valid California Voter’s registration card or voter registration status
- Recent vehicle insurance bill
- Recent health insurance bill
- A copy of a pay stub or paycheck issued in the last six months
- A copy of a current lease or rental agreement, including the landlord’s or property manager’s contact information and signature
- A copy of a current property tax bill showing the homeowner’s exemption
Your landlord will also need to give you the approval to use the property for home-sharing, for which you’ll need to sign an affidavit. From there, you will receive a registration number for home-sharing. The city will email you once your listing is approved.
With this approval, you are allowed to host short-term rental clients for 120 days each year. For anything beyond this, the Extended Home-sharing Permit will be necessary. You are also required to keep records of all the bookings for a minimum of three years.
Should you choose to apply for extended home-sharing, there’ll be additional requirements. These include:
- Evidence that you’ve hosted clients for at least 60 days
- You should have a maximum of one citation in the last three years
- Upload the proof of mailing of your application for extended home-sharing in the portal
- Pay $982 for extended home-sharing
- You must notify the adjacent neighbors and occupants
- Zero suspended or revoked registrations over the last two years
In addition to the regulations listed on the Home-Sharing Ordinance, there’ll also be other requirements that you must observe. These include HOA rules, community rules, and rules listed in your lease. Moreover, you should have a code of conduct for guests and mention it on listings.
It should feature:
- Persons exceeding eight (excluding children) are not allowed to have evening outdoor gatherings
- Loud and amplified music is prohibited beyond 10 pm
There are also requirements that you should adhere to as the host. For starters, you should not book more than one set of guests simultaneously or use the property for commercial use such as parties. In addition, you should provide basic health and safety features such as smoke detectors, fire extinguishers, and carbon monoxide detectors.
For each habitable room you provide, no more than two people (excluding children) are allowed. Also, as the host, you will be responsible for all violations and disturbances to the neighborhood caused by your guests. And for each night you host, you’ll need to pay $3.10.
Malibu is a beautiful city whose beaches, celebrities, and natural hiking trails attract tourists. Beyond this, it’s a vibrant and sunny town with plenty of luxury hotspots. These conditions make it an ideal place to venture into short-term rentals.
The regulations you need to observe in Malibu are outlined in Ordinance No. 468 (Enforcement Ordinance). The council voted in this ordinance on September 29, 2020, and it came into effect on January 15, 2021.
The city encourages all prospective hosts to submit applications as soon as possible. This is because going through each application takes time, and any non-compliance will attract fines.
The process of applying for an STR permit online in Malibu involves:
- Providing proof of ownership by uploading a copy of your Grant Deed and operating agreement if necessary
- Printing the attestation page and uploading it after signing and initialing it
- Mail the original signed and initialed attestation page to Malibu’s Short Term Rental Program
- Pay the $294 registration fee via credit card
How to apply via a Mail-in form:
- Fill out all the necessary information on the form
- Print out the form, then sign and initial it as needed
- Attach the following to the application form; proof of ownership (copy of the Grant Deed and a copy of the operating agreement if applicable) and a registration fee of $295
- Mail the application form to Malibu’s Short Term Rental Permit Program
After the process is complete, you can begin listing your vacation rental. However, your property will be subject to a Transient Occupancy Tax which you’ll collect from the guests. The TOT rate in Malibu is 15%, and you’ll need to file the returns with the city quarterly.
Short Term Rental Regulations in Malibu
Beyond the information you’ll fill out and the documents you provide during applications, there are other requirements that you should adhere to. They include:
- Notify the homeowner’s association in your area as they have the right to allow or prohibit vacation rentals in their zones
- Install safety equipment such as smoke detectors and fire extinguishers
- Have an in-house agent who’s available 24/7 to address any issues that may arise
- Observe occupancy limits and ensure guests do not cause disturbance to the neighborhood
Along with these, you must also abide by all other regulations you are bound to, such as lease agreements, HOA rules, community rules, etc.
Your STR permit will only be valid for a year. However, don’t wait till the expiration date to renew it. The city stipulates that all renewal applications should be submitted at least 30 days before the current permit’s expiration.
Any late renewal applications will be approved at the City Manager’s discretion or their designee. This increases the likelihood of receiving approval after your permit expires. If so, you will not be able to legally post listings as you won’t have a valid permit.
Should you post a listing without a valid permit, you’ll be liable to a daily fine of $1,000 per violation or per day, or two times the daily rental rate of the advertised property per day or violation, whichever is higher.
3. Santa Monica
Another seaside destination in LA’s environs is Santa Monica. The beautiful city is blessed with sprawling beaches and consistently warm weather. These, along with numerous attractions see the city welcome seven million visitors annually.
This makes investment in properties for short-term rental a lucrative venture for Santa Monica residents. But first, you must familiarize yourself with the city’s vacation rental regulations as covered in the ‘Home-Sharing Ordinance.’
The Home-Sharing Ordinance was adopted by the Santa Monica City Council on May 12, 2015, and came into effect on June 12, 2015. Since then, the ordinance has been amended thrice to ensure it accurately covers the needs of hosts and guests. It covers the requirements for listing and advertising and restrictions on occupancy, the number of group bookings, visitor and vehicle limitations, and other restrictions.
Under the Home-Sharing Ordinance, property owners and long-term residents are allowed to share their primary residences. This is upon successfully applying for a home-sharing permit and business license.
Of importance to note is that only short-term rentals via a home-sharing model are allowed in Santa Monica. This means that rental is allowed for 30 days or less only in the host’s primary residence. As such, vacation rentals (where the visitor enjoys exclusive private use of the unit) are prohibited.
The Santa Monica city council only provides one method for applying for a Home-Sharing Permit and Business License. During the application, you are required to provide:
- The address of the property to be used for home-sharing
- Type of property (single-family residence, condo, apartment, duplex, triplex, guest house)
- Whether you’re the owner or a long-term resident
- Evidence of your status as a long-term resident or owner
- Evidence that the proposed property is your primary residence
- Names and contact information of other residents who will serve as hosts for the home-share accompanied with evidence of their eligibility as a resident of the home-share
- The square footage of the proposed home-sharing unit
- Number of bedrooms in the property
- Proof of insurance
- Certifications to demonstrate that you are compliant with the short-term rental regulations as per the Home-Sharing Ordinance
As you submit your application, you’ll need to accompany it with a non-refundable $100 registration fee and $4 for the business license. When you renew the permit in the subsequent years, you’ll only need to pay $50.
Business License Tax
In the City of Santa Monica, home-sharing activities are classified as a service. This means they’re subject to the Tax Rate Group III. As such, you’ll be required to pay an annual tax of $75 for the first $60,000 in gross receipts.
Beyond this, any additional income above $60,000 that exceeds $1,000 is subject to a 0.3% tax. So, if your home-sharing rental income in a calendar year is $90,000 (without any deductions for expenses), the Business License Tax you’ll pay will be as follows:
- $75 tax for the first $60,000 of gross earnings
- $270 tax on the $30,000 gross earnings above the $60,000
- Total Business Tax due of $345
If your gross earnings are below $40,000, you are eligible for the Business License Tax exemption. To qualify for this exemption, you should pay your tax on time, or you’ll have to pay the minimum $75 tax and additional penalties.
Transient Occupancy Tax
Both hosts and guests must pay a Transient Occupancy Tax of 14% imposed by the city each month. If you use a hosting platform, it can collect and remit TOT on your behalf. However, be sure to confirm if it does so.
In Santa Monica, the only people exempt from paying TOT are Federal, State, and City employees on official business.
Additional Santa Monica Short-Term Rental Regulations
As a host, your first responsibility is to understand and adhere to all the requirements and regulations. Otherwise, you may face fines, penalties, revocation of the permit, and prosecution. Some of the key requirements you should know include:
- Occupancy limits are set for ten or fewer people, 200 square feet per person for the dwelling unit, and a maximum of two people (excluding children) per bedroom
- Any violations for advertising and listing attract a fine of $1,000 per day or per violation or higher for repeat violations
- You must comply with the terms of your lease, HOA rules, community rules, and other applicable regulations
- Ensure security equipment such as smoke detectors and fire extinguishers are in place
4. West Hollywood
West Hollywood is known for its rock-music history, vibrant nightlife, and being home to the famous Sunset Strip. This makes it one of the places many people want to visit at least once in their lifetime, making it a great place to buy a short-term rental.
When it comes to short-term rentals in West Hollywood, there are key elements that you should know. To begin with, for properties such as apartments and rental units that are not your residence, the shortest duration for renting them out is one year.
However, if you are a property owner and want to host guests for compensation for less than 31 days, you’ll need a Home-Sharing Business License. The conditions for qualifying for this license are that you own and reside in the property during your guest’s entire stay.
Beyond this, the other vital West Hollywood short-term rental regulations and requirements you should know include:
Before you can list your property for short-term rental, you’ll need a home-sharing license. There are two key factors that determine eligibility for the license; you must own the property, and you must reside in the property for the duration of each paying guest’s stay.
Applications for the Home Sharing Business License can be made on West Hollywood’s website. Some of the details you will be required to provide include proof of ownership and residency.
Transient Occupancy Tax
Once your West Hollywood Home-Sharing Business License application is approved, you’ll be expected to remit TOT to the city. The Transient Occupancy tax rate is set at 12.5% and applies to vacation homes, inns, hotels, and other vacation rentals.
TOT is due by the last day of the month following the reporting period and is payable via the city’s Registration and Tax Payment Portal. As such, you are required to pay the taxes for March by the end of April and so on.
Vacation Rental Violations
The City of West Hollywood values the safety of short-term rental guests. As such, there are steep penalties for any violations. Therefore, as you submit your applications, be sure to abide by the regulations to the tee.
If any complaint is filed against you, a case will be opened, and the city will initiate an enforcement process. The process will proceed as follows:
- The guest or property owner will receive a warning notice directing them to take the appropriate remedial action. This will also accompany a cease and desist order to stop renting out the house for less than 31 days and for all advertisements for the service.
- Continued violations will attract a fine of 400% to 800% of the rental rate to the violating party. The rental rate consists of the advertised nightly rate multiplied by the minimum number of days guests can book the property.
- Fines for listing properties without indication of the rental prices range from $1,000 to $5,000
- Persistent non-compliance may result in criminal prosecution
If any fine is levied against you, payments for the violations should be made within 21 days. Failure to do so will also attract Late Penalty Fees.
One of your key responsibilities as a host is to ensure that your guests are safe and they do not cause disturbances in the neighborhood. Some of the steps you can take to ensure this include:
- Issue each guest with a code of conduct upon booking
- Provide safety equipment such as fire extinguishers and smoke detectors
- Abide by other regulations such as HOA rules, lease agreements, and community rules
Nestled at the base of the San Gabriel Mountains, Pasadena is the preferred retreat destination for many people. It offers an oasis away from the hustle and bustle of Los Angeles. Along with the California sunshine, the city has luscious landscapes and is rich in culture and history. That’s why Pasadena is referred to as the Crown of the Valley.
Beyond this, the city has a vibrant real estate market, with short-term rentals being one of the best ways of cashing in on it. In Pasadena, a residence rented out for transient occupancy for up to 30 days qualifies as a short-term rental.
The regulations on STRs in Pasadena are outlined in Ordinance No. 7317. It permits STRS in property types such as single-family homes, multi-family rental units, townhouses, duplexes, and condominiums. But of course, the ordinance also contains restrictions on STR.
Pasadena Short Term Rental Permit
Before you can welcome guests to your residence, you’ll require a Short Term Rental Permit from the City. The city offers an online application form for hosts to register. Charges for registering as a host include $100 and other administrative costs.
There are two types of short term rental permits in Pasadena:
- Type 1 Permit- This type of permit is issued to hosted short-term rentals. This means that the host is present throughout the guest’s stay, with the exception of working hours. It applies to situations such as when a host rents out rooms in their house.
- Type 2 Permit- This permit covers non-hosted short-term rentals which do not require a host to be present during the guest’s stay. It allows hosts to rent out their homes for a short period while out of town.
For your application to be approved, you must meet the following requirements:
- The proposed short term rental property must be your primary residence
- There must be a local contact person or property management firm that’s available throughout
- You must notify your landlord of your intention to use your house as an STR and provide proof of the same
- You must have a Finance Department issued Transient Occupancy Registration Certificate
- The short term rental unit must comply with fire and life safety regulations such as availing fire extinguishers, carbon monoxide detectors, and smoke detectors
Once you receive your permit, it will only be valid for a year. Therefore, should you wish to continue renting your residence on a short-term basis, you’ll need to apply for renewal before it expires.
Transient Occupancy Tax
For all short-term rental reservations, the city of Pasadena charges a Transient Occupancy Tax of 12.11%. You are responsible for paying all applicable taxes, and remittance is done quarterly online.
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Short Term Rental Regulations in Pasadena
Some of the main regulations your short term rental must meet include:
- All your efforts to advertise, maintain, authorize, and facilitate guests must comply with the ordinance
- It is prohibited to advertise an STR without a city-issued Short Term Rental Permit
- All listings should include the Short Term Rental Permit number
- The annual limit for non-hosted stays is set at 90 days annually with no limit to hosted stays
- Only a maximum of two guests per bedroom is allowed, with an additional two guests at one time
- STRs should preserve the neighborhood’s residential character and comply with the Pasadena Municipal Code regulation, including litter control and noise restrictions
- Hosts shall provide on-site parking for short term rental guests
- Large scale gatherings such as parties and commercial events are prohibited, and the residence shall not be rented out for such purposes
- The exterior of the residence shall remain free of signage or materials advertising its availability as a short term rental
- Any parts of the property that are not approved for residential use, such as storage sheds, garages, temporary structures, and tents, shall not be offered to guests
Short-term rentals are expected to abide by all guidelines for which violations will attract daily fines. If your property amasses three violations, your Short Term Rental Permit may be revoked.
Along with the guidelines provided by the city, you must comply with all regulations that bind you. These include lease agreements, HOA rules, community rules, etc.
Tips for Investing in Short Term Rentals
There’s a good reason short-term rentals are now on many real estate investors’ wish lists. If successful, they bring in steady income that eclipses regular rental earnings. However, you need to make the right investment decisions for your short-term rental unit to perform well.
Here are some tips:
- Sort out your finances to ensure you can afford to buy a vacation rental property
- Find the right location (Where you can attract a steady stream of guests)
- Understand the local home-sharing ordinance
- Begin your search for a vacation rental property
- Renovate and furnish the rental property to make it appealing
- Apply for a short term rental permit from your local city council
- List the property
- Ensure your short term rental property remains in peak condition by performing maintenance and repairs as needed
- Have a guest management strategy
By following these tips, you will significantly increase your chances of success. Also, consider using property management tools to simplify your work.
Is Los Angeles a Good Place for Investing in Short-Term Rentals?
Compared to most cities, Los Angeles is ideal for investing in vacation rentals. For starters, its real estate market has proven to be very resilient and on an upward trend. Secondly, Los Angeles attracts tens of millions of visitors each year. And a big section of these visitors prefers staying in a place with a homey feel.
As such, there are plenty of opportunities to host and make money from vacationers. And while you do it, your property will be increasing in value.