Renting out a vacation house in Santa Cruz County as an Airbnb can be a good real estate investment option for those owning non-primary residences in Santa Cruz, but it is not without its pitfalls and limitations.
The flexibility and income associated with short-term rentals in Santa Cruz can lead to significant income, especially in such a centrally-located tourist hotspot. It is critical to weigh the benefits agains potential challenges, such as local jurisdictional regulations and guest management. Click here to learn more about: Santa Cruz County Vacation Rental Ordinances, as the area (or even street) you live on could greatly impact your options. Pro tip - the mountains are often easier than the coast, with less restricted permit availability.
Homeowners should consider how hosting short-term rentals in Santa Cruz may affect their property, neighbors, and community. Additionally, marketing affectively and providing excellent guest experiences are both vital to keeping occupancy rates high. Fully understanding the costs involved, along with reasonable projections of profit, will aid in making informed decisions about whether or not a property is a good candidate for short-term rental. Whether you're looking for additional income streams from your real estate investments or just have a passion for hospitality, exploring the pros and cons of Airbnb hosting is essential for Santa Cruz homeowners before jumping into the market.
Key Takeaways for Renting Out Your Santa Cruz Vacation Home:
Short term rentals in Santa Cruz can provide a steady income stream, but there is definitely some seasonality to it. Some months are just going to be better than others. The peak season for tourists in Santa Cruz is Summer (June through September).
Homeowners must navigate local laws and regulations or else face penalties and fines.
Santa Cruz short-term rental permits do not transfer upon the sale of a property. This means if you are buying a home that used to be used as a short-term rental, it doesn't automatically mean you will be able to also, as a new owner.
Guest experience, accurate rental pricing, and effective marketing are crucial for success.
Keep in mind that Santa Cruz is considered one of the most expensive places to live in the United States and there is a large housing shortage here. Some neighbors may not be friendly if they learn you are planning to do short-term rentals, so you may prefer to buy a home in an area specifically designated for it.
The Rise of Short-Term Rentals and Airbnb in Santa Cruz
Airbnb has revolutionized the way in which people travel and experience new destinations. It provides a platform for homeowners to rent out their properties while also providing travelers with unique lodgings. Santa Cruz County has been a tourist destination almost from its original incorporation, as its natural beauty, tourist attractions, central location, and notoriety for surf culture appeal to many visitors. Its proximity to multiple airports, as well as the global tech hubs of Silicon Valley, have propelled it to receiving over 3 million tourists every year (according to santacruz.org). Aside from the large number of tourists, those that rent out their home for short term rentals in Santa Cruz are seeing great success on Airbnb for the following additional reasons:
Affordability and more bang for your buck
More amenities (hot tubs, kitchens, etc.)
More authentic experiences/locations - live like a local!
The ability to book lodgings for families, larger groups, or for private retreats
Unique offerings (treehouses, boats, airstreams, etc.)
Ease of use with support from Airbnb backend office
Evaluating Costs and Profitability
Understanding operational expenses and revenue potential is crucial for anyone considering buying a home in Santa Cruz to use as an Airbnb. helps owners make informed decisions regarding their property.
Operational expenses for an Airbnb include multiple factors. Owners should account for property management fees, cleaning costs, and maintenance expenses. If using a management company with front desk services like at the Seascape Resort, fees may range from 30% to 50% of rental income. For outside management, the fee range is more commonly 15% to 25%. Additionally, utility bills, property taxes, and insurance must be considered. Owners should also include costs for furnishing the property to meet guest expectations. Keeping a detailed budget helps identify whether the investment is sustainable.
Estimating revenue potential involves calculating nightly rates and occupancy rates. Competitive listings in Santa Cruz often have median rates around $200 to $500++ per night, depending on location and property type. If an owner expects an 80% occupancy rate, they can calculate monthly income as follows:
Nightly Rate: $300
Occupancy Rate: 80% of 30 days = 24 nights
Gross Monthly Revenue = 24 nights x $300 = $7,200
By comparing this potential income to the operational expenses, owners can better understand their profitability. Keeping track of seasonal trends and adjusting pricing accordingly can also help predict income.
Tax Obligations and Accounting: Property owners using their homes as vacation rentals may have additional tax considerations as well as additional write-offs. It is vital to work with your CPA to understand tax obligations and benefits. One such consideration is the Transient Occupancy Tax (TOT). Depending on your jurisdiction in Santa Cruz, property owners must collect and remit TOT from guests. The transient occupancy tax rate in the unincorporated county and in Santa Cruz City as of 2024 is 14%, and in Capitola it is 12%. It is essential to factor this into rental pricing and you are required to register with your jurisdiction and make monthly payments to them. Maintaining detailed records of income and expenses is important for tax reporting and potential audits.
Advantages of Using Your Santa Cruz Home as an Airbnb
Using your home in Santa Cruz as a short-term rental can offer significant benefits. These advantages include the potential for higher rental income, better access to personal use of the property throughout the year, and the flexibility to set rental terms according to personal preferences. By keeping leases under 30 days you can "license" the right to stay in your home as opposed to "leasing" it and becoming a formal landlord.
Potential for Higher Rental Income: Renting a home in Santa Cruz as an Airbnb can lead to increased earnings compared to traditional long term rentals. Santa Cruz is a popular tourist destination, attracting tourists from nearby areas who are often willing to pay a premium for short-term stays. Hosts can set competitive prices based on demand, especially during peak tourist seasons, weekends, and holidays. With upscale marketing and appealing amenities, a Santa Cruz Airbnb can generate substantial revenue, providing a lucrative opportunity for homeowners.
Increased Utilization of Property: Many homeowners in Santa Cruz may only use their properties part-time as second or third vacation homes. By becoming a Santa Cruz Airbnb host, they can maximize the utility of their homes when they are not in residence, allowing owners to avoid the costs of maintaining an empty property and can even help cover maintenance and property tax expenses. It transforms a vacation home into a source of income.
Flexibility in Rental Terms: Renting out your property on Airbnb provides flexibility that long-term leases do not. Homeowners can select the dates they want to rent their property, allowing for personal use when desired. They can adjust rental rates and availability based on personal needs, special events, or peak travel seasons. This flexibility helps in managing bookings effectively without ongoing commitments. Being an Airbnb host allows owners to find a balance between earning income and enjoying their home in Santa Cruz, without fears associated with long term tenancy such as eviction concerns, rent control ordinances, etc.
Cons of Airbnb Hosting in Santa Cruz
Hosting on Airbnb can present several challenges. Understanding these hurdles is essential for anyone considering turning their home into a short-term rental in Santa Cruz.
Regulatory Hurdles and Legal Restrictions: Airbnb hosts must navigate local jurisdictional regulations. In Santa Cruz, there are strict laws around short-term rentals. Compliance with zoning laws is crucial. This involves obtaining specific permits and adhering to occupancy limits. If a host fails to comply, they could face fines or even legal action. Additionally, homeowners associations (HOAs) often have their own rules against short-term rentals. Hosts should thoroughly research local laws to avoid complications. The easiest way to start is to read our article here and then email the county (or city) planning department to inquire about specific addresses/parcel numbers (APNs).
Continuous Management and Upkeep: Managing an short-term rental in Santa Cruz requires ongoing attention, as hosts must regularly clean, maintain, and prepare their property for guests. This includes anything from performing minor repairs to cleaning between bookings. Prompt communication with guests is also vital for good reviews and repeat visitors. Managing bookings can become time-consuming so many hosts find it worthwhile to hire a property management service. However, this can also cut into profits, balancing convenience against financial implications. As discussed above, many local property managers charge between 15-50% of the nightly rate for their management services.
Property Wear and Tear: Using a home as short-term rental can lead to excessive wear and tear over time, accelerated by frequent guest turnover, and maintenance costs can begin to add up. High traffic areas like kitchens and bathrooms usually show signs of use first. Regular cleaning, repairs, and replacements must be budgeted and accounted for. Homeowners should plan for expenses such as new appliances or even new flooring every few years. To mitigate wear and tear, it’s important to have a regular maintenance schedule. This includes deep cleaning, inspecting appliances, and checking for damage. Staying proactive can extend the life of the property and enhance guest experiences, ultimately supporting a successful Airbnb venture. Pro tip - a good annual home warranty can help you in the case of broken appliances!
Financial Variability and Risk: Month-to-month income from Airbnb hosting can fluctuate significantly. While a the busy summer tourist season might boost income, off-peak times can result in lower occupancy rates. Unexpected expenses may also arise, such as repairs or guest-related damages. Hosts need to prepare for these financial ebbs and flows by maintaining an emergency fund. They should also evaluate their pricing strategy based on seasonal demand and local events. This is one more reason it is good to work with a local property manager that can help you accurately price your rental for maximum occupancy and returns.
Impact on the Santa Cruz Housing Market: When homeowners rent their properties in Santa Cruz as Airbnb rentals, it can impact the local community including the housing market and community relations. In some neighborhoods, increased listings have led to a rise in long-term rental prices. This shift can squeeze out long-term residents, making it challenging for them to find affordable housing. Additionally, properties that might have been available for long-term rentals are now often used for short-term stays. This can reduce the overall rental supply, further driving up prices.
Impact on Community Culture: The influx of short-term renters may impact community relations between residents and visitors. Santa Cruz locals often express concerns about noise, traffic, and general disturbances caused by short-term guests. On the other hand, tourism can also bring economic benefits to local businesses may see increased sales from visitors, contributing positively to the neighborhood’s economy. Maintaining a respectful relationship between homeowners and the community is essential. Clear communication and setting expectations for guest behavior can help alleviate some concerns and promote harmony in the area.
Top Santa Cruz real estate agent Ace Woods brings a fun and educational approach to real estate in the Santa Cruz area, with the goal of helping families build wealth through real estate.
Selling a home in Santa Cruz? I will help you prep your home for sale with no up front costs so that you can get top dollar when you sell your biggest asset.
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For more information on Santa Cruz short-term vacation rental ordinances and considerations, or to buy a vacation rental home in Santa Cruz, reach out to top Santa Cruz real estate agent Ace Woods at 831-419-5852.
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