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Erin Spahn poses for a photo at her parents' condo in Chattanooga.

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Rental Rush

For some people, midday is time for a lunch break, or perhaps a nap.

But for Erin Spahn, midday is crunch time.

To Spahn, who operates a one-person commercial cleaning service specializing in short-term vacation rentals, midday signals a scramble to clean properties. There's only a small window of time between guests checking out and guests checking in.

Like others in the business, Spahn, a former real estate agent, has found a reliable income stream and a promising future in the realm of short-term vacation rentals.

Interestingly, it was Spahn's own experience renting out a spare bedroom suite in her High Street apartment years ago in downtown Chattanooga that taught her the need for a reliable cleaning service. She says as a working person, she sometimes struggled to prepare the unit in time for check-ins. Now, her cleaning business, Short Stay Chattanooga, is filling precisely that niche for others.

"I clean essentially every single day," she says. "There were a couple of months where I worked 65 days straight."

Recently, Spahn purchased her first rental unit and eventually she wants to sell her cleaning business to become a full-time property manager. It's a dream that's becoming more common as technology pairs travelers and Chattanooga property owners.

 

Scope of the business

Airbnb, one of the most established online portals for short-term vacation rentals, reports that its Chattanooga-area hosts earned $11 million last year. A 10-county Southeast Tennessee region including Hamilton County was responsible for 110,000 Airbnb guest registrations in 2018, the Times Free Press reported.

Airbnb bookings in the Chattanooga area have more than doubled in each of the past two years, from 24,600 in 2016 to 53,000 in 2017, and then to 110,000 last year, the company reports. Such growth has turned investors' heads, and in some cases spooked traditional property owners who fear a flow of tourists will change the nature and quality of neighborhoods.

To manage the growth in this emerging rental sector and to quell citizen concerns, the Chattanooga City Council in 2017 passed an ordinance that requires permits for the lawful operation of short-term rentals and restricts the practice to certain areas of the city.

In July, residents of the Eastdale area reached out to ask the Chattanooga City Council to essentially annex their neighborhoods into the city's Short-Term Vacation Rental District. Several residents said they wanted the opportunity to earn extra income by renting out rooms in their houses, framing the issue as a property right.

Property owners who skirt the permit ordinance risk receiving cautionary letters from the city through a compliance company that checks online listings against the city's growing list of permitted short-term rental properties. Although there are more than 200 such permitted properties, some landlords still operate under the radar, insiders say.

There are provisions in the city ordinances for safety inspections — for example smoke detectors must be hard-wired and linked electronically. There are also formal ways for neighbors to object to City Hall about short-term vacation rental permit applications, and under certain conditions, they can be denied. Landlords are also required to pay state and local taxes on short-term vacation rentals.

Christina and Christian "Thor" Thoreson, a married couple who operate the Chattanooga Vacation Rentals, point out that they remit $60,000 to $70,000 a year in sales and use taxes from the 25 properties they manage, all of which are full-size homes. There are 21 people on their team, they say, so they create jobs, too.

"Thor and I are intentional about following the law and doing the right thing," says Christina. "We want people visiting Chattanooga to have a positive experience."

Meanwhile, industry insiders point out that short-term rentals are often well-kept. Managers visit short-term rental properties on a day-to-day basis, and they are incentivized to keep them pristine. Bad online reviews from vacationers are the bane of the short-term rental business.

Ashley Burns, a third-generation Chattanooga Realtor, manages vacation-rental and other properties under the banner of Real Estate Partners. She says Chattanooga's short-term vacation rental market has grown almost 10-fold in the last five to seven years.

Thor and I are intentional about following the law and doing the right thing. We want people visiting Chattanooga to have a positive experience.

"These are typically properties that are kept really nice," says Burns, who manages 25 short-term rentals including several she owns. "If I have a property, I'm in it many times a month. I'm cleaning it. I need people to show up every night."

If properties are not clean and well-maintained, they will get bad reviews online and bookings will go down, Burns says. On the other hand, some landlords who offer long-term leases go months without inspecting their properties, she says.

 

Supply and demand

People who manage and provide services for short-term vacation rentals say they offer valuable assistance to tourists, many of whom prefer to rent residential units for their Chattanooga stays.

Property managers often serve as concierges, directing visitors to local restaurants and attractions. It's estimated that renters spend less than half of their vacation dollars on accommodations, with a lion's share going to local restaurants, attractions and retailers.

The Thoresons, along with Chattanooga Vacation Rentals operations manager Jen Richards, say the supply of permitted short-term vacation rentals in Chattanooga is smaller than many people think.

Of the 27,331 residential properties (houses, apartments, condos) within a 10-minute drive of the city center, about 13,000 are long-term rental units and only a minuscule, 224 or so, are permitted for short-term rentals by the city of Chattanooga, they say.

"That's about 1.8 percent of the rental units and less than one percent (of all residential properties)," Richards says.

 

Chattanooga thrives

As Chattanooga's $1-billion-a-year tourism business continues to thrive, the appetite for vacation rentals will only climb, some believe. Groups are learning that they can rent a house instead of a cluster of hotel rooms.

"Chattanooga is putting so much into getting folks here for family trips and sports teams," says Richards. "We've had a lot of softball teams, cheerleading squads and basketball teams (rent houses)."

Some fear the lure of owning short term rental units will dry up housing stock for permanent residents.

Probably not, says Christina Thoreson, who notes that the actual profits from short-term rentals — after expenses, taxes, etc. — are not much different from long-term leases. The upside is that owners can claim partial use of a piece of property if they want and keep close tabs on its condition, she says.

Meanwhile, Burns, of Real Estate Partners, says real estate listings often tout that a property would be "perfect for Airbnb" without any thought to the actual viability of the location. Investors sometimes find out — too late — that there are complications.

"A lot of them don't do their due diligence," Burns says. "They don't check the covenant fees. Are they in the overlay (short-term vacation rental district)?

"Or they get a condo and don't realize it is a one-year rental (lease) minimum," she says.

Still, if the math works and the permits are in place, it can be a lucrative business.

Burns says the "sweet spot" for city center vacation rentals is about $95 a night for a one-bedroom unit and about $130 for a two-bedroom unit on weekdays. On weekends that can balloon to $140 for a one-bedroom and $200 for a two bedroom, she says. Rates vary by location, unit and season, of course.

Burns said corporate rentals often take up the slack during off-peak times for vacationers.

"We have strong employment and huge companies that carry the corporate (rentals)," she says.

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