Updated June 15, 2021
Colorado Springs Airbnb laws changed significantly at the end of 2019. If you are a real estate investor looking to get into the Short-Term Rental (STR) market, you may have missed your opportunity, at least in the city of Colorado Springs.
The Colorado Springs City Council has implemented some new Colorado Springs Airbnb Laws that make investing in Short Term Rentals more challenging. We are going to take a look at why those rules were implemented, what the rules are and how to move forward as a real estate investor.
What Are Short Term Rentals?
The phrase short term rental has traditionally meant a rental property that is leased for less than one year. This type of rental was generally used by people who were waiting for a home to be built or were new to an area. Short Term Rentals were usually difficult to find and didn’t create much controversy.
This all changed with the introduction of online platforms like Airbnb and VRBO.
Both of these services allow homeowners to lease their own place directly to guests for short periods of time, much like a hotel would. These transactions are now referred to as Short Term Rentals or STR’s
This new type of short-term rental is actually for very short periods of time. Short Term now means by definition less than 30 days but in practice, the lease periods are more commonly 3 to 5 days.
Controversy with the Colorado Springs Airbnb Laws
Controversy is what motivated the Colorado Springs City Council to institute these new Colorado Springs Airbnb laws regarding short term rentals. Investors love short term rentals because they yield high returns, however neighbors detest them because of the increase in traffic, noise and people coming and going.
The short-term nature of the stay demands a higher rental rate while in most cases, the tenants aren’t in the rental long enough to cause any serious damage. There are of course exceptions to this rule but for the most part, STR’s are a great investment.
The opposition around short-term rentals generally stems from inconveniences created by the short-term tenants. Things like parking in the wrong place, making too much noise, or just being a bad neighbor.
In a long-term rental lease, these problems can be worked out over time but or the problem tenant can be removed. In a short-term rental, the tenants are gone in a few days and the process potentially starts over again with each new guest.
Frequent complaints from STR neighbors to municipalities eventually led officials to implement guidelines around STRs. This is the case as well here in Colorado Springs, Colorado. In a recent move, the Colorado Springs City Council approved new short-term rentals regulations on 25th November 2019.
New Colorado Springs Airbnb Laws Outlined in the Ordinance
The Colorado Springs City Council voted 5-4 to approve the new provisions for short term rentals which are more stringent than existing provisions. These new provisions were recommended by the City Planning Commission.
The goal was to regulate properties rented out by online platforms such as VRBO and Airbnb. The City Council decided that these provisions were needed to establish a standard for all the short-term rentals within Colorado Springs.
- As per the new provisions, the Council has provided a definition of owner-occupied short-term rentals to clarify whether a person falls under this category or not. The Commission defines owner-occupied short-term rentals as an owner who has been inhabiting a property for a continuous period of one hundred and eighty-five (185) days in a particular year. This essentially eliminates the non-owner occupied STR or investor model as an option, at least in the City of Colorado Springs.
- Along with providing the non-owner occupancy clause, the City Planning Commission also specified that there must be at least a five hundred (500) foot of operation buffer between any two new newly permitted short-term rentals. They have also clarified that this distance of five hundred feet will be calculated on the basis of a straight-line distance between two new short-term rentals and any intervening structures will not be regarded. So, a new short-term rental property must be situated at a distance of about five hundred feet in any direction in a straight line from another short-term rental property.
- The next provision that was introduced limited the overnight occupancy. Pursuant to Section 7.5.1706(H), “maximum overnight occupancy of a short-term rental unit shall be limited to two (2) occupants per bedroom, plus an additional two (2) occupants per dwelling unit. The maximum occupancy per dwelling unit shall be fifteen (15) occupants.”
You are Going to Need a Permit
Short-Term Rental operators will be required to obtain a valid permit to operate. The operator must display their approved permit and Good Neighbor Guidelines (with the permit number, valid through date, and local emergency contact) in a prominent location within your short-term rental unit.
The permit is valid for one (1) year from the date the permit was issued by the Planning & Community Development Department. After the expiration, the permit becomes invalid and the operator can renew the permit for an additional period of one year.
The Ordinance also clearly states that the permit is issued to the owner, not the property. This means that the permit is issued to the operator or the specific owner in order to operate or use the short-term rental unit.
Once the property transfers from one owner to another, the permit becomes invalid. The new owner will have to reapply for a new permit.
For example. "Mr. X" the operator of a short-term rental unit received a permit on January 1st of 2020. This permit is valid for one year from the date of issuance or December 31st. of 2020.
If "Mr. X" sells the short-term rental unit to "Mrs. Y" on, November 1st. of 2020, "Mrs. Y" will need to apply for a new permit if she intends to continue operating the property as a short-term rental.
In the case of non-owner occupied STR’s, existing owners (Pre-November 2019) are grandfathered in and therefore eligible for a Permit. Although these non-occupant owners are grandfathered in, they still need a permit to operate and if they sell or transfer the property, the new owner is not eligible unless they live in the property for more than one hundred and eighty-five (185) days.
Are There Still Opportunities For Real Estate Investors?
There are still opportunities for investors to be a successful Airbnb landlord in other cities and towns within the Pikes Peak region. The key is to find areas that are desirable to visitors.
Probably the best opportunity for non-owner-occupied short-term rentals. Manitou Springs is a small tourist-friendly town located just west of Colorado Springs. The city of Manitou Springs adopted regulations for the very first time in 2016. The Planning Department recommended changes to those rules in 2018 and at this point in time has yet to implement those changes.
As of now, the regulation states that the permission of the Manitou Springs City's Planning Commission is required for the rental of the dwelling unit which is given on rent for the sole purpose of lodging for at least one day and for a maximum period of twenty-nine days. The planning commission of the city provides the occupier with a minor conditional use permit.
Monument, Colorado is a small town located just north of Colorado Springs. While Monument doesn’t possess the same tourist appeal as Manitou Springs, there are limited possibilities to find tenants for a short-term rental in Monument.
Monument is close to the United States Air Force Academy and both Cadets and Parents look for short-term rentals. Monument is also home to some great outdoor activities like hiking and mountain biking. An STR investment in Monument would certainly be more difficult to keep occupied but it’s not out of the question.
In the town of Monument, there are no regulations around short-term rentals.
Palmer Lake is located just west of Monument, Colorado and falls into the same category as Monument when it comes to STRs. There is limited availability but also not a strong demand either.
The City of Fountain, Colorado is located just south of Colorado Springs. The City Fountain is home to the Fort Carson Army Base. This creates the potential for short-term rental guests from friends and family visiting service members. Additionally, Fountain is close to both Schriever Air Force Base and Peterson Base. Both of these air stations provide potential guests as well.
Fountain is currently looking to adopt the zoning rules for both tiny homes and short term rental units which are advertised by online platforms like Airbnb and also for other houses that are rented for a continuous period of thirty days at any particular given time. However, regulations or official notification from Fountain have yet to be announced.
Woodland Park, Colorado
Woodland Park is a small eclectic mountain town located west of Colorado Springs in adjoining Teller County. While not as popular as Manitou Springs, this city does have a strong draw for tourists. The upside to Woodland Park for inventors is that there is generally more available inventory here than in Manitou Springs.
Woodland Park has yet to institute rules around short-term rentals.
Corporate Rental Opportunities
Another niche might be to look into short term rentals that require a stay of 30 days or more. Leases of more than 30 days do not require a permit.
These have traditionally been called corporate rentals and were intended for corporate employees traveling for work for extended periods of time. They afforded these road warriors the amenities of home in a setting that was more comfortable than a hotel.
Much of the corporate rental market jumped into the Airbnb model of leasing simply because it was so profitable. This has left a vacuum in inventory for those people looking at short term rentals for more than 30 days but less than a year. This is people that are building houses, new to the area or corporate travelers.
While the rates for a corporate rental are less lucrative than those for the Airbnb type rentals, they are still more attractive than what you would see on a traditional long-term lease.
Potential LLC Loophole
Recently it was brought to the attention of the Colorado Springs City Council that there is a loophole that allows for limited liability companies to hold short-term rental permits forever. Even though the number of LLC companies that hold permit for short term rentals is relatively small, the issue created some discussion. The commission ruled against a permit holder who wanted to keep his permit after transferring ownership of the rental house to a limited liability company for liability and estate planning reasons. The intent of the city code was for short-term rental permits to expire when homes are sold. Neighborhood advocates are encouraging the Colorado Springs City Council to close this potential loophole to maintain the intent of the city code.
At this point, the Colorado Springs City Council has committed to revisiting the rules around short term rentals within the city limits again at some point in the future. Until then we have to live with the current regulations.
If you aren't an existing pre-November 2019 non-occupant owner of a short-term rental in Colorado Springs the good news is you've been grandfathered in and as long as you acquire a permit can continue to do business until you sell the property.
If you are a homeowner leasing out an accessory dwelling unit or small apartment within your home. You're OK as long as you have a permit and follow the rules regarding number occupants allowed.
Finally, if you are a non-owner occupied investor looking to get into the short term rental market in the Pikes Peak Region, your best bet is going to be to lookout in one of the surrounding areas that don't yet have restrictions in place. Airbnb and VRBO properties do well in areas that are a popular destination for visitors and tourists.
Until something changes, this is the current status of the Short-Term Rental market in Colorado Springs. If you have any additional questions on short-term rentals or real estate investing in general, please feel free to contact us.