This year has been an eventful one for short-term rentals around the world: The boom-bust saga and seeming unending fights about new regulations.
06.12.2023 - 04:30 / skift.com / Srividya Kalyanaraman
We’ve been talking a lot about the intersection of real estate and short-term rentals and today we continue to do so with another related topic: 1031 exchanges.
For the uninitiated, in the U.S., 1031 exchanges involve swapping one income property for another for a tax advantage — transferring capital gains from a relinquished property to a newer one while allowing the investment to grow while deferring tax payments. For those eligible for a 1031 exchange, taxes from the sale are postponed until a future sale, potentially spanning several years.
Naturally, I was curious to know if these exchanges are popular among vacation rental and short-term rental property owners.
The simple answer is yes.
“I’ve had a lot of customers reach out to me regarding the 1031 exchanges. Right now it’s really hot amongst rental property owners,” said Cathyana Jean-Baptiste, founder and CEO of Skinny Tax, a Los Angeles-based accounting firm. “Generally back in the day, it was more companies that were doing these 1031 exchanges. Now I’m seeing a lot of regular homeowners getting into the business of 1031 exchanges. So there’s been an uptick in terms of the tax services for a general individual who wants to dive into a 1031 exchange and wants to switch one property for the other.”
Baptiste said that earlier 1031 exchanges were used by those in the business of flipping rental properties — think property managers, family offices, high net worth individuals, real estate developers. Today it is often an average taxpayer, who owns a primary residence but has a little income on the side, so decides to buy a small house to turn into a rental property or a unit to turn into a rental property.
“The Airbnb market has really brought 1031 exchanges to light,” Baptiste said. “A lot of people are saying, hey, I can rent properties out through this app. So let me get into the rental property market. And that’s why a lot of us tax professionals, we’ve seen a big uptick on these exchanges.”
That this is happening is not surprising — property owners are realizing that they are facing challenges, and as prices increase and properties are on the market longer, the management upkeep and expenses only continue to build up.
What does this mean for the economy and the general residential housing market?
“So obviously, it’s bringing more passive income to the average individual taxpayer. But it is creating a situation where the rental property market is affecting the available housing for tenants trying to move in the longer term,” Baptiste said. “And I’ve noticed that with the Airbnb regulations in Los Angeles, for example, they’re having an issue with these individual taxpayers and small companies buying out a whole bunch of properties in
This year has been an eventful one for short-term rentals around the world: The boom-bust saga and seeming unending fights about new regulations.
Hawaii Governor Josh Green has asked for 3,000 condos and homes operating as short-term rentals to be converted into long-term housing for those displaced by this summer’s wildfire in Lahaina.
Hawaii Governor Josh Green said he is ready to “drop the hammer” or go “nuclear” on short-term housing rentals on Maui.
Taylor Swift’s Eras Tour made headlines even before it began — by overwhelming booking platform Ticketmaster and drawing attention even from the U.S. Senate.
Dealmaking has kept short-term rental businesses in Europe busy. The past few months have seen an uptick in activity — be it mergers, or acquisitions or rebrandings.
Booking Holdings Chief Financial Officer David Goulden said this week that the flagship Booking.com brand launched its short-term rental business as a supplement to hotels “15-plus years” ago, which is roughly around the time Airbnb got going in San Francisco.
This is not a story of “Airbnbust,” but instead we’re talking about a correction of the “Airbnboom” that has taken place since the highs of the pandemic.
Happy Thanksgiving, folks! I know you’d rather carve a turkey than open your inbox, so we will keep this brief.
You read it here first: We’re halfway into the year, and the short-term rental industry has been buoyed by summer travel picking up, despite prevailing economic uncertainty.
Stat of the Day: Thinking that you, like us, are wondering what’s happening to occupancy levels this summer, we had some numbers crunched for us by data analysis firm Beyond Pricing and this is what it found: U.S. occupancy for July is pacing about 5 percentage points down year-on-year, from 37 percent in 2022 to 32 percent in 2023.
New This Morning: Following extensive discussions within the community spanning almost four years regarding short-term rental homes, the Dallas City Council implemented zoning limitations to prohibit their presence in single-family neighborhoods last week. However, as a middle ground, short-term rentals will still be permitted in commercial areas and multi-family neighborhoods.
AvantStay confirmed late Tuesday afternoon it cut 37 employees, or nearly 10% of its workforce. Responding to a Skift inquiry, the Los Angeles-based vacation rental property manager tied the layoffs to platform and tech improvements, adding that the company is profitable.