Short-term vacation rental trend catches on in Nashville

For Kimberly Rodriquez, renting out her 4,000-square-foot Nashville home to guests means more family vacations and other leisure activities, including dinner outings with relatives.

"It's more like a second income rather than a job that I have to go to, and it pays a lot more," said the mother of two, who is looking to expand her offering with an under-construction condo unit she plans to buy near downtown.

Rodriquez is among players in Nashville's growing short-term vacation rental market, which has seen 1,200 permits issued since the city, under new regulations, started accepting applications six months ago.

Nashville being a hot travel destination, a tight supply of hotel beds here and real estate investors looking to cash in on demand are among factors driving growth in that industry. Airbnb and Homeaway are the websites facilitating that market, which new local businesses such as rental management company Stay Local Nashville LLC are also cropping up to serve.

"Five years ago, there wasn't anyone talking about Airbnb in Nashville," said local condo broker Chad Wohlers, who co-owns a vacation rental property in Sylvan Heights off Charlotte Avenue. "Now investors are talking about it all the time."

Even Nashville restaurateur Jack Cawthon is aiming for a piece of the action. He's converting a 15-unit apartment building next to his Jack's Bar-B-Que on Charlotte Avenue into short-term vacation rental property McMillin Court.

"It's all about location, location, location, and I've got the perfect location for a business model like this," Cawthon said about the Midtown property.

Research Cawthon conducted showed he could get three to four times more in income from renting out the units for $150 to $300 a night versus the up to $1,200 a month he would get from market-rate, longer-term apartment leases. “It’s a no-brainer,” he said.

Visitors help to fuel growth

The target market for McMillin Court includes conventioneers and other travelers to Nashville, businesspeople and others needing a place to stay while visiting relatives at nearby hospitals or Alive Hospice, Cawthon said.

One thing that's clear is Nashville is a popular travel spot.

And citing the high travel interest but relatively low rental property supply, website TripAdvisor's rental-specific division ranks Music City among 13 U.S. destinations with top rental potential.

"The high traveler demand for Nashville rentals offers homeowners in the area an opportunity to enjoy a substantial extra income if they were to consider renting," said Laurel Greatrix, spokeswoman for TripAdvisor Vacation Rentals.

On TripAdvisor Vacation Rentals’ website, the average weekly rental rate for a two-bedroom property in Nashville starts around $1,668.

Airbnb, meanwhile, saw a 134 percent increase in Nashville listings for the year through January, with 2,161 active currently. HomeAway's tracking shows demand for bookings in Nashville up 83 percent this year, while the city's vacation rental inventory grew by 90 percent.

For some visitors, the short-term vacation properties provide a lodging alternative to hotels and a different experience of the city.

"Obviously, we’re filling a need," said Ted Pins, a local real estate broker who owns a short-term vacation rental home in Sylvan Park. "People want to visit a city and stay in the neighborhoods that make that city special, not stay in a generic hotel that they can see in any city in America. The magic of Nashville is not all on Broadway."

Year to date, Nashville's average hotel daily rate is $125.64, up 9.2 percent from last year, according to Hendersonville-based industry tracker STR. High-end hotels here charge as much as $400 a night.

Meanwhile, the average price for an Airbnb listing in Nashville is $174, while HomeAway's average nightly rate for the first nine months of this year was $220. Most short-term rental property owners also add fees to cover cleaning and other costs, and some do for additional damage protection and liability insurance.

Chasing higher returns

Short-term vacation rental property investors Wohlers and Pins agree with Cawthon that it's a matter of simple economics.

By Wohlers' calculations, the single-family home in Sylvan Heights he and a business partner rent out on a short-term basis would bring in only $4,000 a month under a long-term lease versus up to $10,000 as a vacation rental property.

In an average month, the short-term vacation rental home Pins own is booked 17 to 24 nights. "The bottom line is that rental is making $10,000 or more for us a month versus if I rent it at $2,800 a month or $3,000 unfurnished on an annual lease," he said.

The short-term rental business, however, isn't without its pitfalls. For instance, Pins said his personal information has been stolen and scam artists have listed his vacation rental property on Craigslist.

There's also a range of associated costs, including specialty insurance and legal liabilities, from operating a vacation rental property. Under new regulations, owners collect 15.25 percent in taxes plus an additional $2.50-a-night fee, which is filed with the city.

"It's not as glamorous as it appears, and experienced short-term rental landlords know this," Pins said.

Most condo associations restrict owners from renting their units short term, with the penalty at one major downtown high-rise $5,000.

One factor that could limit local growth in the niche is new regulations that went into effect earlier this year.

Among rules Metro Council passed, no more than 3 percent of the single-family and two-family units within each census tract in Davidson County are permitted as nonowner-occupied short-term rental use. Lockeland Springs, Germantown and 12South are among areas at capacity or with limited availability of such permits.

Short-term vacation rental stays can run from three days to up to 30 days.

Two years ago, Rodriquez ventured into short-term vacation rentals as she explored ways to generate income from excess space at her home. After a background check and home inspection by the state's fire marshal to meet requirements, she posted her house on Airbnb.

Rodriquez charges between $300 and $400 a night for her entire home, depending on the season. Airbnb considers her a "superhost" based on customer ratings.

"It's given me some financial rest or relief now," said the therapist, who often takes trips with her children or visits family while her home is occupied by a short-term renter.

For his part, Cawthon looks forward to McMillin Court opening early next year. The property includes a courtyard where a tent can be hoisted for catered weddings and other events.

Cawthon also is eyeing synergy with his nearby Jack's Bar-B-Que. "Guests will be able to order from their rooms and we bring food over from the restaurant," he said.

Reach Getahn Ward at 615-726-5968 and on Twitter @getahn.

Resources

Information on short-term rental permits is available at:

• www.nashville.gov/Codes-Administration/Construction-and-Permits/Short-Term-Rentals.aspx

• http://maps.nashville.gov/strp/ (availability map for nonowner-occupied permits)

Income opportunity in Music City?

TripAdvisor ranks Nashville third nationwide among 13 U.S. destinations with top rental potential.

Average Nashville weekly rates*

1 Bedroom $1,100

2 Bedroom $1,668

3 Bedroom $1,851

4 Bedroom $3,358

Source: TripAdvisor Vacation Rentals