• Sasha Ryerson

Vacation Rentals: Your Key to Passive Income in Santa Fe?

I had my first experience with a short-term vacation rental a few years ago and I was sold instantly. Planning to attend a music festival in Austin, Texas, we realized that hotels near the festival were completely booked months in advance. Those not completely full were charging exorbitant rates. I was traveling with a group of friends and paying for that many rooms was out of the budget. We booked a 3-room house with enough beds for everyone, saved a ton of money, and fell in love with an up-and-coming neighborhood (coffee shops and giant beards everywhere). The family moved from their larger house we rented into their small backyard guest house and left fresh croissants, Pabst Blue Ribbon, and a giant pecan tree for us to enjoy. The hipster trend was sweeping the nation, and I felt like I had invented it. I couldn’t help but marvel that the home owners had made almost $1,000 for cleaning their house and sleeping in their guest house for a few nights. Short-term vacation rentals have become much more than a trend. If you own residential property in a place that draws large crowds of out-of-towners, you could join the growing number of real estate owners in establishing a mostly passive stream of income!

Santa Fe, with a long summer tourist season, ski season, not to mention Indian Market, Spanish Market, and International Folk Art Market is a great place to rent out your house or guest house for extra cash. In the third week in January (random, but during ski season) the average Santa Fe vacation rental that sleeps at least four adults goes for about $167 a night on VRBO or $227 a night on AirBnB (the price difference comes from the way administrative fees are handled by the company, but you can list your rental on both sites and sync the calendars).

Vacation rentals have become more complicated than putting up some pictures of your guest house on the internet. They are to the hospitality industry what Uber is to taxis. As revenue leaves these older, slower moving areas of industry, taxation and regulatory bodies are taking notice. If you make more than $1,000 a year, you must claim your income as royalties/rental income on your income taxes. Many cities and states, including Santa Fe, regulate and license short term vacation rentals. Running afoul of tax law or even municipal zoning ordinances is probably not worth the headache in exchange for the extra income.

I will present the basic steps and info here on creating your own short-vacation rental in Santa Fe. Additional information is also available on the city and county websites, in the land use, zoning, and planning division.

Santa Fe has limited the number of short-term vacation rental licenses to 1,000 residential units. As of December 2018, there were 820 licenses taken and about 40 pending (changing weekly). If you want to get one of the 140 left, that probably means moving on this quickly as there are currently no plans to increase the number of licenses. You’ll have to be aware that only two short-term vacation rentals can exist side-by-side, so if your property would make a string of 3, you’re too late.

If you decide to jump on this gravy train, here are the steps you’ll need to take:

1. Submit an application online, by mail, or in person. You will pay a $100 non-refundable application fee.

2. Submit supporting documentation.

3. Comply with zoning, water conservation, and fire inspections (inspection fees are covered by your application fee).

4. Pay $325 for your license.

5. Display your permit or registration.

6. If your application is approved, you’ll have to mail notice to all neighbors within 200 feet of your home within 10 days of approval.

7. Annually, you’ll have to renew your application and pay the $325 fee.

You must be available by telephone 24/7 if your property is rented out as a short-term vacation rental.

The documentation you’ll need varies a little depending on your property. For a guest house (accessory building) or separate rental property you’ll need:

1. Proof of ownership (deed or latest property tax record) of short-term rental unit

2. Site plan to scale showing all buildings and parking (i.e. improvements survey)

3. Floor plan to scale showing all bedrooms

4. Proof of compliance with §14-6.3(C)(1) Accessory Dwelling Units

5. Proof of property insurance that identifies the dwelling unit as a rental unit

If you’re going to crash on mom and dad’s couch during Spanish Market and rent out your own home, you’ll need t:

1. Proof of ownership (deed or latest property tax record) of short-term rental unit

2. To-scale site plan showing all buildings and parking

To-scale floor plan showing all bedrooms

4. Proof of ownership (deed or latest property tax record) of property

5. Proof of property insurance that identifies the dwelling unit as a rental unit

If cleaning up before and after your guests, managing regulations, and managing online reservations via websites like VRBO or AirBnB sounds like more hassle than fun to you, there are property management agencies that specialize in taking care of all these details for you.

You may be thinking that this sounds like a fantastic, hands-off way to let your investments work for you. You may even factor the possibility of adding this income stream into your next home purchase decision. If so, consider this: if your property in Santa Fe is zoned non-residential or commercial, you are exempt from the 1000 license limit. As residential home owners clamor for the few remaining licenses, you could have a guaranteed permit. The licensing process is the same for both residential and commercial properties. The permit for a commercially zoned property costs only $100 annually, compared to $325 for residential. Many structures in Santa Fe, originally built as homes, have been re-zoned as commercial properties. A property like this can serve as an excellent vacation rental.

Owning a short-term vacation rental property in Santa Fe, either your primary residence or an investment property that can produce income year-round, can be a good way to earn extra income. With a property manager, this can be income that you don’t have to work for! Familiarity with the process and regulations can help you decide if owning a short-term vacation rental is right for you. For help with locating and purchasing a commercial property to be used as a short-term vacation rental, please contact a commercial real estate broker who can help you determine the value of your investment and find the property that is right for you!

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