Will the Sedona Pilot Program "Rent Local" Be Successful Over STR?

By
Real Estate Agent with Coldwell Banker Realty NRDS # 146013739

Sedona "Rent Local" Pilot Program

Short-Term Rental (STR) vs "Rent Local"

The only way I can make a true comparison is through my experience in selling STR.  I have sold nine different properties this year that are STR capable.  All of this hit the national news because we just can't find housing for local workers.

I am going to use an example of one of my recent sales that had a documented history of rental income of $10,000 a month.  STR properties have been selling for 10% to 20% more than that same home could sell for in an area that does not allow STR. 

The property I am going to use as an example is in the video below. It will add context to my opinion.  I sold this property for $1,200,000.  It has no views, but it is an awesome STR that fits all the requirements for vacation rentals.  Ironically, the people that bought this property are going to live in it and not use it as an STR! But the option to rent it out is there.

Go to this link with all the info about the sale of this STR-capable property

If this same home was in any other neighborhood that did not allow STR, it is my opinion that it would sell for 10 to 20 percent less! Many of the short-term rentals were receiving multiple offers because of the rental income.  One of my associates just sold his STR.  It was making $25K a month!  This home has gorgeous Sedona views.

In 2017, SB 1350 became effective and addressed vacation and short-term rentals by:    

  • Prohibiting a city, town, or county from restricting the use or regulation of vacation rentals and short-term rentals;
  • Allowing the local government to determine regulations governing vacation and short-term rentals if the regulation is meant to protect public health and safety;
  • Providing a mechanism to collect and remit rental taxes to the Arizona Department of Revenue; and
  • Creating more economic opportunity and inclusiveness while protecting the private property rights of the homeowner.

Since enacting the law, vacation and STR have exploded in popularity. However, many subdivisions and HOAs already had minimum restrictions for rental occupancy, generally, one-month minimum.  I live in a community with a 1-year lease restriction for rentals.  These communities, subdivisions, or HOAs were grandfathered.  

Sedona 'Rent Local' Pilot Program

It is important to know that Sedona local workers cannot find housing.  Either rentals are too expensive, or there is nothing to rent at any price.  This is now a major issue.  One resort has decided to purchase homes for their employees in a neighboring city and then transports them to the resort.  The employees pay a reasonable rent. 

As a reminder, Sedona is a huge tourist destination that can command anywhere from $5000 to $25,000 monthly in rental income per property. 

Superbowl 2023 Arizona

Image courtesy of the Host Committee.

Also, remember that the Superbowl will be played in Arizona in February 2023, and people coming to be a part of the celebration will spill over to Tucson and up to Sedona. Rents will explode this winter and spring.

Here is the context of the new program.

  1. Terms of the Rent Local pilot program that was approved by the Sedona City Council on 8/9/22 are as follows: One-year minimum lease to a verified local worker in exchange for a cash incentive, applicable to registered STRs, 1-year minimum lease, at least one renter is a verified local worker, "local worker" is to be employed in the community for a minimum of 30 days at 30+ hours a week, the homeowner to refrain from renting short-term for three years, maximum rent charged is $2200/mo., cash incentive to homeowner runs from $3,000 for a room to $10,000 for a single family (3 bed) home, $240,000 in total funds are being allocated to the pilot program.

You Be The Judge...

If an owner decides to participate in the rental program and gets the maximum of $10,000,  they could lose $110,000 a year for 3-years if they get an average of $10,000 a month. That is $330,000 total.  Each of these homeowners paid a premium for an STR-capable property.  Do you think an investor or homeowner might be willing to make that change?

My guess is that this may benefit borderline properties that are not able to command a high rental fee and have registered as an STR with the city. There is only $240,000 allocated to the initial pilot program. 

Comments (32)

Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Sheri, STR properties are definitely gaining popularity, and sold one earlier this year to a buyer that wants to add an ADU to the property for additional income.

Aug 21, 2022 09:03 AM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

A couple of additional points... The birth of this movement to renting homes became more rampant when the Great Recession started in 2008.  To keep from losing their home, owners started renting rooms out. 

 

Aug 21, 2022 09:04 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Sheri and interesting post to share with us here in the rain.  I am sure some HOA are looking into this.

 

Aug 21, 2022 09:39 AM
Roy Kelley
Retired - Gaithersburg, MD

Thank you very much, Sheri, for this interesting post.

Have a productive week.

Aug 21, 2022 10:30 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Vacation homes are not prevalent where I live, but there are nearby communities where they are.  The issues for neighbors can sometimes be an issue.

Aug 21, 2022 02:46 PM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Joan Cox - The ability to earn income from the property gives the owner much flexibility.

Aug 21, 2022 05:02 PM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Will Hamm - Depending on the area, there are CC&R as well as deed restrictions that may allow for changes.  But many areas can require two-thirds to 100% of property owners to make those changes. 

Aug 21, 2022 05:06 PM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Thank you Roy for checking it out.

Aug 21, 2022 05:06 PM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Myrl Jeffcoat -  We bought in Sedona 19 years ago and it never entered our minds.  There were B&Bs but no such thing as a STR!  If you have many in one neighborhood, it can change the dynamics of that neighborhood and that is the concern of many home owners.

Aug 21, 2022 05:11 PM
Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!

STRs are a big deal here in Charlotte and as you demonstrated, the sales prices are considerably higher with multiple Offers on homes in areas that permit them. Investors are paying more for them as their ROI is considerable. The interesting thing about my market is that those neighborhoods without HOAs, where STRs are permitted, are our best, walkable communities and command HIGH rent rates. It's the perfect scenario - unless your next door neighbor is an investor with loose 'rules & regs' for their guests!

Aug 21, 2022 10:51 PM
Kathy Streib
Cypress, TX
Home Stager/Redesign

Hi Sheri -When I was in South Florida short term rentals were in demand during the "season" when snowbirds would visit. Many also rented their homes out during Polo Season. I'm not sure how that has been impacted now with limited inventory. 

One of the communities I know of was built to house those who worked for the infrastructure in Delray however by the time they were built prices had escalated so much, the workers could not afford them. Buyers had to agree not to sell them for a given period of time. 

Aug 22, 2022 11:10 AM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Debe Maxwell, CRS - The"loose rules" is what the city and the large management companies are working on. 

Aug 22, 2022 03:03 PM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Kathy Streib - Local worker housing is a big challenge especially in tourist areas.  I was on the Arizona Community Foundation Board and the goal was to find solutions for this dilemma.  We have been scouting areas that could accomodate low income housing for workers.  Part of the rental structure would be that you show proof of local employment.

Aug 22, 2022 03:09 PM
Rocky Dickerson
Realty One Group - Las Vegas, NV
Superior Service!

Yes, STRs have been a huge topic in my area as well. Major casinos have fought them hard

Aug 22, 2022 05:12 PM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Rocky, 

Very interesting.  With as many hotel rooms as Las Vegas has, one would not even think that STRs could make much of a dent in the occupancy rate.

Aug 23, 2022 11:35 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Sheri, sure sounds like this program will be beneficial to Sedona's environment.

Aug 26, 2022 07:38 AM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Sheri - I know some people who have made good rent receipts with STR as long as the had the right property and location.

Aug 26, 2022 07:49 AM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Joan Cox ,

I like that the city is thinking about solutions. But I am not sure if investors will take the pay cut.

Aug 26, 2022 02:48 PM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Grant Schneider,

I think this is why these STRs have done so well!

Aug 26, 2022 02:49 PM
Roy Kelley
Retired - Gaithersburg, MD

Good Saturday morning, Sheri.

Have an outstanding weekend.

Aug 27, 2022 05:13 AM