Brett Williams says there’s a circle of life for many Tahoe-area residents: A visitor becomes a renter or homeowner becomes a rental host becomes a seller.

Williams was raised in the area, and has lived here consistently since 2001, managing long- and short-term rental leases and selling real estate with Agate Bay Realty in Carnelian Bay. He’s been involved in each step of what he calls the Tahoe circle-of-life process, has years of interacting with clients in the rental and realty spheres, and watches the Tahoe market’s ups and downs like a hawk. He knows what he’s talking about when he says, “It’s so much better financially to go down the long-term side [of renting].”

As the North Tahoe/Truckee communities shed long-time locals due to a lack of workforce housing and rising residential prices, and the jurisdictions scramble to find solutions for the shortage, Williams points out what he sees as the reason the housing market hasn’t course corrected, the reason homeowners aren’t choosing to provide the higher cost benefit of long-term renting to locals in need: It’s not about the money; it’s about the use.

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“If it was about the money, the market would’ve adapted by now,” Williams explained. “The market would’ve said, ‘Wow, I can rent my place for $3,500 a month and move all the snow removal, gas, electric [costs to the renter]. I don’t have to get carpet cleaned; windows cleaned. I don’t have to be replacing furniture all the time. I don’t have to buy sheets and towels and all these other things that you have to do in a vacation [or short-term] rental, all these headaches. I can just put someone in there and I can get my monthly check.’ That’s exactly the way it works. ‘[But long-term renting] doesn’t allow me to use it? No? Well, I don’t want to do it.’”

Numbers coming out of Truckee and Tahoe vacation rental studies show that the median annual income of those operating STRs is between $20,000 and $25,000. Meanwhile, many homeowners spend a lot more money keeping the property up to scratch. To long-term rent a property, annual income tends to be higher, nearly $40,000 a year, though still with considerable expense.

The Covid-19 pandemic, of course, shook up second home use completely.

What Covid did

Jill Schott, owner of Tahoe Moon Properties based in Kings Beach, spoke about how the appeal of having a second home in Tahoe skyrocketed under Covid.

“You’re not buying a house in Tahoe to long-term rent,” she told Moonshine Ink. Tahoe Moon Properties manages 60 short-term rentals, 42 of which opt to do longer ski leases during the winter, usually for four to five months. The property management business also oversees 15 long-term rentals, which lease for 12 months or longer.

Schott said that at the start of Covid-19, many of her property owners came up to Tahoe and blocked off their houses from being rented for any time still available. Some even asked Schott and her staff to cancel then-active ski leases so the second homeowners could utilize the property. (Tahoe Moon didn’t.)

Dana Moraru, owner and CEO of Tahoe Signature Properties, said property management trends in mid-2020 saw visitors seeking to stay in STRs more than ever. “Only one of my owners took possession of [their] house and moved in full time,” she wrote in an email. “The rest rented, and we were booked like never before.”

Tahoe Signature Properties, which offers rentals and management services to Truckee and the North Shore, oversees 45 vacation rentals, short-term options only, though Moraru says she has a history of working with long-term leases. She says that the rental success she’s seen depends on how expensive the home is.

“The higher end the house, the better it will perform on the vacation rental market,” Moraru wrote. “If maximizing rental income is the owners’ goal and they purchase a house … then, yes, long term is the way to go there. If it’s a property over $1 million in today’s market, I would go vacation rentals.”

Fresh numbers out of Placer County and the Town of Truckee provide a clear picture on the breakdown of STRs within their boundaries:

A BAE Urban Economics draft report published in December, titled Eastern County Short-Term Rental Economic Study (page 18 at this link), found that of the 15,640 total residential units in eastern Placer County, 12% are occupied by the property owner; 9% are rented out long term; and 79% are second homes. Nearly 5,600, or 38%, of the total residential units have Transient Occupancy Tax certificates, which allow STR operation; about 1,500 of those certificated houses did not report any revenue during the 2020/21 fiscal year.

In 2020/21, the average eastern Placer unit was listed available for rent 250 nights of the year and was occupied 103 of those nights (up 53 nights from 2009/10 or a roughly 6% rise each year since).

In Truckee, 9.2%, or 1,255 units, of the total housing stock of 13,674 are registered STRs, a heavy majority of which operate in Tahoe Donner.

‘I don’t care about the money’

“Too many times people talk about the revenue associated with vacation rentals,” Williams said. “What they’re not taking into consideration is the expense associated with vacation rentals.”

As a short-term renter, you compete with the thousands of other similarly touted ‘quaint and cozy mountain getaways,’ he said. Constant cleaning, advertising, and keeping things up to date (no avocado granite countertops, Williams joked) takes a financial toll — and more so if you want someone else, like a property manager, to oversee the renting out. There’s also the customer service aspect.

“A lot of owners that choose a long-term renter route find there’s less headache on a day-to-day basis,” said Colin Frolich, co-founder and CEO of Landing Locals, a Tahoe-based business connecting second homeowners and long-term renters. Such headaches spring up even without pandemic mandates, Interstate 80 weather closures, and wildfire, each of which can result in the inability to short-term rent for a time.

Frolich, who’s a long-term renter with his wife, Kai, said that they went to the Oregon coast last summer to escape the wildfire-induced smoke that filled the Tahoe Basin.

“We kept paying rent, though,” he continued. “Our landlords live in Alaska, and they were really sorry, but it’s not like they gave us rent forbearance. If the roads are closed or you can’t get to work, you still pay your rent. Part of it is that short-term rentals, when the roads are closed, Airbnb says, ‘Oh, here’s your money back, guest.’ You don’t get that with long-term rentals.”

Schott echoed Frolich: “When you compare short-term to long, long-term is a guaranteed rental income … Short-term renting is good money, but it’s not guaranteed.”

Some, like Janet Brady and her husband, who live on Donner Lake, have earned $5,000 to $7,000 per month from short-term renting the additional dwelling unit on their property (about $60,000 to $84,000 year).

That annual amount is far higher than the median amount received in STRs in the Town of Truckee, which was $21,451 during 2020/21 FY (the average was $28,411). In 2019/20, the median STR income was $13,038.

“It is worth noting that this amount [of $21,451] generally does not represent the revenue from a property owner making an effort to maximize their return on their property,” added Hilary Hobbs, assistant to the town manager in Truckee, “but is more in line with incidental use (i.e. renting out when their family or friends aren’t using it) … A histogram of taxable receipts for Truckee’s registered STRs [shows] 28.7% earned between $25,000 and $50,000, and we have [17] properties earning over $100,000, so there is certainly a range.”

The data shared in the town study reveals that 58 rental properties existing within Truckee boundaries are non-compliant. Outreach is taking place to bring them into compliance.

Median income out of hosting an STR in eastern Placer comes to $25,181 annually, or $2,098 monthly. Average annual revenue is about $10,000 more: $35,320.

The benefit of using the median, or exact middle, amount in a range means extreme outliers don’t hike up the central number like an average point would. For example, “when you have that average, what happens is if there were 100 sales and one of them was [Facebook founder] Mark Zuckerberg’s, it outweighs all the other ones and drags the average way up,” explained Frolich. “So median is of all the houses sold in North Lake Tahoe last year, the middle price of the house smack dab in the middle is this much … Median flattens out that skew a little better.”

The Bradys’ annual income is modest when compared to others. In eastern Placer County, 276 homeowners generated from $100,000 up to over $600,000 from short-term renting during 2020/21.

In general, however, long-term rental benefits abound more than the STR perks, interviewees agreed — maintenance-wise, community-wise, and certainly financially (more on this later). But many people who are staying in their second homes aren’t interested in anything other than enjoying Tahoe themselves.

“When the value of use is as high as it is now, [my second home clients are saying], ‘Brett, I don’t care about the money [that comes from renting]. I have an opportunity finally to use my second home for four months rather than four weeks,’” Williams said. “‘Block it off.’”

Placer County staff reported in a STR ordinance update that they heard from multiple property managers and realtors that “many buyers don’t need STR revenue and primarily buy for second home use.”

Two sides; two different coins

Williams went as far as providing a detailed comparison of expenses for both a short-term and long-term rental.

For the data that follows, Williams utilized the numbers provided by the BAE economic study. BAE staff evaluated multiple data sources, like AirDNA, CoStar Group, and Inside Airbnb, but found the information to be inadequate for the comprehensive coverage that was needed — for example, sampling biases weren’t expressed. Placer County’s own database was ultimately used as the most thorough source.

The amounts for expenses were shared with Schott, Moraru, Frolich, and Hobbs, and they agreed that the amounts were sound.

According to Placer, the median price of homes in the eastern portion of the county during 2021 was $855,000, and that amount is being assumed in both examples below.

Short-term rental

Median annual income:

• • • $25,181 (average is $35,320)

Annual expenses:

• • • $6,295 commission ($25,181 x 25% for a property management fee)
    • $10,260 property taxes (rate of 1.2%)
    • $44,850 mortgage (25% down, so $641,250 mortgage at 3.4% APR) ($3,700/month)
    • $4,000 fire insurance
    • $6,000 utilities (gas, electric, water, trash, TV, internet)
    • $1,000 sewer
    • $1,200 snow removal (driveway and shoveling)
    • $800 deep cleaning (two times a year at $400)
    • $1,000 window washing and carpet cleaning
    • $1,000 supplies (toilet paper, paper towels, dishwasher soap, laundry detergent)
    • $5,000 furniture (amortized over 10 years, $50,000 over 10 years)

Total expenses: $81,405

Loss: $60,224

If an owner foregoes property management services in this case, the deficit would be $56,224.

While $50,000 for furniture might seem high, Williams said it is realistic. Consider the furniture needed —couches, tables, beds, lamps, wall-hangings, TVs, etc., and smaller items like dishes, pots, bed linens, and more that need to be replaced fairly frequently — and spread the cost out over 10 years. “When you really look at that, $5,000 a year is not that much,” he shared. He gave an example of a client who purchased a house for $868,000 in July 2021. Upon purchase, the home was extremely dated (see before photo below) and the owners remodeled to make it more appealing as an STR.

“The buyers had to go get all new furniture,” Williams continued. “Granted, they did some remodeling as well (see after photo below), but that isn’t even included in the analysis on what $855,000 takes to get decent guests and decent outcomes. This first year they put in way more than $5,000 for couches, beds, tables, light fixtures, sheets, towels, appliances, etc., but over the course of years it should average out.”

Long-term rental

Annual income:

• • • $39,000 ($3,250 a month) (based on Williams’ portfolio of long-term renting homes)

Annual expenses:

• • • $3,600 in commission ($36,000 x 10%)
    • $10,260 property taxes (rate of 1.2%)
    • $44,850 mortgage (25% down, so $641,250 mortgage at 3.4% APR)
    • $4,000 fire insurance
    • $1,000 sewer
    • (Consider ongoing maintenance, defensible space work, landscaping, etc.)

Total expenses: $63,710

Loss: $24,710

If an owner foregoes property management services in this case, the deficit would be $21,460.

Frolich said that the need for long-term rentals during winter months tends to slow down and rent trends downward to approximately $2,500 to $3,000 a month rather than the $3,250 shared above.

Where’s the solution?

The greater Tahoe area’s jurisdictions are anxiously engaged in addressing STR usage and housing shortages. Placer County and the Town of Truckee are actively exploring and enacting limits to STRs; El Dorado County has placed a cap on the amount that can operate; and Washoe County is in talks to implement additional policy recommendations to the STR regulations that went into effect in March 2021.

In seeking solutions to the regionwide problem, Frolich says that newer second homeowners are not the ones to approach for possible long-term renting options.

“A lot of the owners that come to us at Landing Locals for long-term rentals have owned their homes for a long time or might own them outright, so their cost basis is totally different,” he said. “They usually come to us when it’s either their primary residence or their vacation home and they no longer have any desire to use it and they want to rent it out for multiple years on end. Then definitely they’re looking for a more stable monthly income versus the ups and downs and peaks and troughs of short-term rentals.”

Williams is pushing for people to take a hard look at the numbers: With 79% of housing stock in eastern Placer functioning as second homes, Williams says it’s more beneficial to have them occupied, as it means higher consistency in patronage for businesses. He did add that he doesn’t want occupancy levels as high as they were during the summer of 2020.

Even with more consistent patronage in businesses, STR impacts to the surrounding community are worth the concern. Cindy Gustafson, District 5 supervisor for Placer County, told Moonshine that nothing is worth the noise, trash, and parking issues that come with STRs.

Gustafson, fresh off a unanimous board decision on Jan. 25 to put a 3,900 limit on STRs in eastern Placer, spoke to the need for workforce housing in the area, saying, “Small businesses are much more concerned about having adequate workforce to serve the people coming.”

“I, for one, am really hopeful that we start to see some ability for locals to purchase homes,” she continued. “Not everybody can afford the prices on these homes, but if they’re not guaranteed rental income, will the market correct a bit for that? We won’t know until we’ve had it in place for a few years. There are many other factors that affect the market — interest rates, demand on the region, and heavy snow years and forest fires — there’s many, many issues. It’s hard to define how much impact this will have on long-term housing for employees.”

Williams countered, saying a regional example shows that restrictions on STRs will not stop appreciation.

“Look at South Lake Tahoe,” he said. “South Lake Tahoe implements caps on their short-term rentals a few years ago; we get the pandemic; South Lake Tahoe for a good portion of the pandemic was the highest appreciating market in all of California. Yet they put caps on short-term rentals three years ago. Someone needs to explain to me how doing this on the North Shore is going to slow to down appreciation when our competitive set has already done it.”

South Lake was recognized as Zillow’s most popular place across the country in 2021, based on “page-view traffic, available housing inventory, price appreciation and other housing barometers that indicate consumer demand,” market analyst Nicole Bachaud wrote in a Zillow report recently — not just based on highest appreciation as Williams stated.

Moraru of Tahoe Signature Properties whistles a similar tune to tamping down on the wrong party: “The low-income housing [fund through the Town of Truckee] has to step in and do its part and really offer back low-income housing and not blame it on the part that actually brings business to the area … Everyone who rents short term in Truckee contributes 1% of the taxes that we collect (TOT) to that fund. It would be nice to see that working and our authorities [having] a plan so our workers are able to live up here, not just work.”