Sep. 19—When the COVID pandemic hit in 2020, home became the place to be for those who could be online there for work, education, dining, shopping and leisure. During the pandemic's peak years of 2021 and 2022, online out-fits, such as Amazon and Netflix, saw their profits soar. At the same time, profits and evaluations of on-site commercial offices, retail businesses, restaurants and the traditional travel industry plummeted as people stayed home.
Could home — the safest place to work, go to school, eat, shop and play during a pandemic — become an income source as well? A side gig? Along with well-established venture funds and veteran real estate investors across the country, many non-real estate investors and homeowners, including ones in Santa Fe, began to look at short- and long-term residential rental models, such as VRBO and Airbnb, and thought, "Let's give it a try." Some renting out their casitas, some setting aside an extra room, some renting out their entire homes (when they themselves went away for their own vacation—or spent more time in their second or third home).
The results? The short-term vacation rental market in Santa Fe jumped some 30% during the pandemic, and this market continues to be lucrative. Demand is high — not as high as during the pandemic peak years of 2021-2022, but high, with 40 million visitors coming to the state yearly. The most recent 2023 data from Mashvisor (https://www.mashvisor.com/blog/best-states-to-buy-investment-property/) is illuminating. With regard to short-term rentals (30 days or less), New Mexico ranks ninth in the country, and Santa Fe ranks third among the top cities in the state. Santa Fe's monthly short-term rental income averages $4,331, and its monthly short-term rental cash on cash return (real-estate-speak for a transaction that calculates the cash income earned on the cash invested in a property) averages 3.77%. The occupancy rate comes in at 57%.
AirDNA, a top resource for Airbnb rental property data, bases its price tiers not on specific rates, but on how they vary by market, and divides its listings into five groups, with the budget representing the bottom 20% of rates, economy the next 20%, and so on, with luxury occupying the top 20% of ADRs. So, in Santa Fe, for instance, "the average daily rate for the luxury tier," says AirDNA's Madeleine Parkin, "has not passed $600 in the past 5 years. So $1000 a night would be very unlikely, except for extremely large or luxurious properties."
Obviously, as the bedroom count increases, the difference between the luxury and lower price ADRs increases. Guests may expect to pay nearly three times as much for a one-to-three-bedroom luxury property versus a budget property. Luxury properties with five or more bedrooms will usually cost guests four times more than a budget property with the same number of bedrooms. (Remember that average ADRs, just like for-sale home prices, vary greatly depending upon markets, locations and amenities. ADRs for luxury properties in Aspen or in Park City, Utah, average $1,500, while lux properties in smaller markets, say, Boise or Spokane, average $300.)
Despite Santa Fe's short-term rental demand dropping slightly in 2023 from "very hot" domestic travel during peak COVID times, the demand for short-term rentals coming from those traveling internationally into the U.S.—into Santa Fe—travel is up. Sasi Zemach, co-founder of the luxury home rental site mysantafegetaway.com, says demand for their short-term properties currently sits at 65%.
Consequently, mysantafegetaway and other short-term rental sites, such as Casas de Santa Fe and Fiorina Properties/Barker Management, have been offering ADR discounts on selected properties. The discounts range from 15 percent to 40 percent. They run through September and require a stay of a minimum number of nights.
Across price tiers, luxury properties in the short-term rental market lead in terms of ADR growth. In 2019, the average ADR for luxury properties was $225, according to AirDNA. In 2022, however, the average ADR for luxury properties increased nearly 36%, to $573. During the same time period, budget and economy properties experienced ADR price growth rates of approximately 25% and 22%, respectively.
In Santa Fe's short-term rental market, city regulations apply and are enforced.
Back in January 2021, Santa Fe allowed only one vacation rental permit per person in residential zones and limited the number of short-term rental permits in residential zones to 1,000 citywide. As of this March, however, property owners in Santa Fe County can apply for permits to operate short-term rentals. But between now and March of 2024, new purchasers who don't live on site won't be able to apply for permits.
That's an issue that also came up at a meeting this past May up in Taos. As reported by The Taos News, Taos County's senior planner Andy Jones dropped the bombshell that, "Granicus [a local government soft-ware provider] has told us that 95 percent of short-term rental operators in the country are not residents" of the communities in which their rental properties are located.
As of now, though, in Santa Fe, new short-term rental permits are available for $100 (a one-time nonrefundable application processing fee), and for an annual fee of $325 the purchaser receives a short-term rental permit and business license (a fee that's also due once initial inspections have been passed). Short-term rental owners must also reapply each year for another short-term permit. As of now, the regulations for a short-term rental include:
—A unit may be rented once within a 7-day period; this does not apply November 15 — January 15.
—The guest limit is two times the number of bedrooms.
—A unit must meet all building, fire and safety codes and all water requirements.
—The owner must pay all local, state and federal taxes, plus lodgers' tax, gross receipts tax and income tax.
—A unit must have a certificate of occupancy.
—All records will be reviewed by the Land Use Department. (A lawsuit has recently been filed by a group of short-term rental owners objecting to such reviews.)
For further information on Santa Fe's short-term regulations, see: https://santafenm.gov/land-use/short-term-rentals.
The bottom line on the short-term rental market in Santa Fe: a home can also serve as a short-term vacation rental, but establishing and maintaining this "income center" requires a lot of work. According to Zemach of mysantafegetaway.com, it entails not only scrupulous attention to detail, maintenance, gardening and design, but also requires creativity.
What's going on with short-term rentals in Santa Fe?