Pacific Palisades Vacation Rental Market


Thinking about renting your Pacific Palisades home as a short-term (Transient Occupancy) furnished vacation rental on VRBO or AirBnb? I would strongly advise against it!

 

First of all, if you don't have a free place to stay then don't bother. In my opinion the Homewood by Hilton in Agoura Hills is your most reasonable place to stay, but even staying at the Homewood will take too large of a bite out of your profits.

 

Also if you don't already have all of the furnishings and bedding that you need then don't bother. You do not want to spend more than a couple hundred dollars to get your home ready.

 

If your home is not near the beach, doesn't have a spectacular view or at least is close walking distance to stores and restaurants (the Palisades Village) then don't even bother. Nobody is interested in renting your secluded home up the hill. Even homes with pools don't seem to garner the interest of tourists like you might think. In the order of most desirable to least desirable homes, here's what guests are looking for...

 

1. Home close to the beach

2. Home walking distance to the Village

3. Home with spectacular view

4. Home with pool

 

Beware that guests are also looking for the cheapest deals they can find. I see 2,000 square foot, 2 million dollar homes offered as low as $340 a night that just cannot rent. No reviews! No action! Just to put it in perspective, a single room at the Best Western in Santa Monica on the noisy corner of Santa Monica and 26th street goes for about $230 per night, or 2/3 the price of the 2 million dollar home! You can't begin to rent the average Pacific Palisades house until you drop to about $300 a night. How does that make business sense on a 2 million dollar home? It makes NO business sense!

 

And in fact Pacific Palisades has the worst rental yield (price/rent ratio) of any city in the area. The more expensive the neighborhood, the higher the price/rent ratio. This is not good if you're wanting to rent.

 

Examples of area price/rent ratios (lower is better):

 

Pacific Palisades: 25.48

Los Feliz: 20.36

Beverly Hills: 19.18

Downtown: 18.39

Bel Aire: 17.87

Santa Monica: 17.51

 

Risky

Renting in California is also risky. If someone refuses to leave your home after check-out time, you can't just call up the Sheriff to drag them out like you might be able to in other states. In California's Liberal courts, landlords are automatically presumed to be bad people who kick guests onto the cold streets, leaving them homeless. And so you must ponderously go through a minimum of 3 weeks of court process to win your case to in turn get the Sheriff to come out. By that time your dead beat "guests" have bilked you for an extra 3 weeks free stay. Heck, if you're from out of the country and you're only visiting the USA one time for perhaps a month, might as well just book a 1 week stay and enjoy the last 3 weeks for free! Nobody's gonna sue you in International court.

 

And if you think that you can just require a $5,000 security deposit to protect against squatters, think again. Your place will never rent if you charge more than about $1,000 for a deposit!

 

Fraud Risk

And it doesn't end with the risk of dealing with a squatter. When accepting payments from guests you are in a precarious position. Checks can bounce weeks later. Credit cards may be stolen, and until an unauthorized charge is discovered, neither VRBO nor AirBnb will know. Credit card charges can also be reversed if your guest creates a phoney gripe about who knows what. Then the credit card company becomes judge and jury and you are powerless to stop their decision.

 

No Way to Adequately Screen Guests

And just who will be staying at your home? When you lease your home long-term you get to fully screen prospective tenants. But when you rent your home to short-term guests you are at the mercy of doing a quick "Internet screening" if possible -- Are they on Facebook? Linked In? Does anything show up when you Google them?

 

Air BnB is problematic when it comes to screening. All you see is their first name and a brief introduction that they may or may not present. Some have many different forms of verification (that you can't see) and some might have nothing more than an email address verified by AirBnB. So with AirBnB you may be left completely in the dark. If the prospective guest does not have pre-existing feedback then you might want to just refuse to book them. AirBnB also only accepts one form of payment: Credit card payment through AirBnB only. No PayPal. No personal checks. No cashier's checks. Nothing. Air BnB also doesn't let prospective guests know the exact address of where they are booking. This is because AirBnB is paid based on a percentage of the rental price. They don't want guest and host to make side arrangements, thus circumventing having to pay AirBnB. For all of these reasons I suggest not even bothering with AirBnB.

 

When you pay VRBO a yearly fee of about $400 you become a "subscriber". Then, since VRBO has already been paid, VRBO actually lets you exchange phone numbers and information with prospective guests This way you can actually get a feel for who is wanting to stay at your home.

 

Discrimination

But this leads us to the next potential problem with renting your home: Legal problems such as discrimination lawsuits. And there's agents who work for the city of Los Angeles who may contact you, pretending to be prospective guests. You are not allowed to discriminate based on race, color, religion, disability, medical condition, marital status, age, gender, sexual orientation or country of origin. These are considered "protected classes". That's right, if you are worried about screaming kids destroying your house, then tough luck! Last time I checked, the fine was somewhere around $18,000 for the first offence. Accordingly, you want to have a written screening procedure and rejection policy, preferably saved as a document file just in case you need to prove that you aren't making up policies on the fly and you didn't reject someone because they were part of a so-called protected class.

 

There's also all kinds of other things you can get sued for under California law and local ordinances. For example you cannot be too strict about occupancy rules. For example insisting on no more than 2 people per one-bedroom, or 4 people per two-bedroom home, or 6 in a three-bedroom home may violate Uniform Housing Code. In the eyes of the law you are discriminating against minorities. I take issue with this because I don't want all of that excess wear and tear on my home! And if a guest can bring 7 people into my 3 bedroom home, all of a sudden my Pacific Palisades home becomes affordable for riff raff that would otherwise have to stay at a Motel 6, all thanks to law makers who have made things as difficult as possible! So you will need to read a law book or two before doing this vacation rental thing. Even more work and headaches!

 

City of LA Headaches

Another annoying thing about holding your house out for short-term rentals is that you must file a tax form once per month (not per year!) with the City of Los Angeles. By the way it took me about a week to figure out if Pacific Palisades falls under LA County or LA City jurisdiction. The County of LA didn't even care to alert me when I registered my Pacific Palisades home by mistake under LA County. But so the City of LA doesn't even care if your home has rented at all or not. You still have to keep filing the tax form month after month after month. Adding insult to injury, half the time that I mailed in my tax return, they claimed that they never received it! Even once I cancelled, they still kept barking up my tree about failing to file for the last month. The city is run by bumbling idiots.

 

Unfurnished Leasing is a Much Better Idea!

Hopefully after reading about just some of these pitfalls of holding your home out as a vacation rental, you will decide that it's just not worth it! If you want to make money renting your home then I suggest renting it unfurnished and doing long-term leases of 5-months or longer. Be sure to research how much it will cost you to live elsewhere. Expect to pay a premium for leases of less than 12 months, then factor that into what you charge to rent your house.

 

Also consider taxes. If renting for 6 months then ideally you would begin renting in October so that it's split between tax years and you lower your tax bracket. You don't want to have the entire rental period to fall into one tax year.

 

You will find that the longer-term rental market is a completely different supply and demand situation. When it comes to long-term, it's a landlord's market in Pacific Palisades and there's very few homes to choose from here in the various price ranges. So my advice is clear... You might as well bite the bullet, rent your house long-term and be done with it. Under an unfurnished long-term lease your home will fetch perhaps 20% to 25% less but as least you won't be repeatedly moving in and out, and dealing with all of the host work that goes with the territory of doing short-term transient occupancy renting.