The rise in popularity of vacation and home rental apps like AirBnB and HomeAway has made it it highly lucrative to own residential rental properties in any major city. In San Francisco, Darren and Valerie Lee were given a $2.25 million fine after staging their 17-properties to make them look legit.
According to an article by the SFChronicle, the couple collectively has over 45 rentals across their 17 properties, all of which were staged to look more appealing to potential renters and to try to fly under the radar of the local government.
“The Lees violated the injunction thousands of times, racking up more than $900,000 in short-term rentals in just the first 11 months after it was in place. Their take was about $700,000.“
The Lee’s are of course not the only ones taking advantage of those looking for short-term housing in the Bay Area, where the average rent is nearly $3,500 per month on a studio:
In a lengthy email to the SF Chronicle, Valerie Lee wrote that the couple felt like they had been martyrs for many others who offered vacation rentals. She said she and her husband appreciated the process of working with Herrera’s office on a settlement, which “helped us understand the city’s need for affordable housing at a much more in depth level.”
The couple claims they settled because they didn’t want to waste the cities time and resources with an investigation. The more likely reason is that they made much more than the investigators found.
The Lee’s were charging between $350 and $500 per night (with the cheapest listing at $250 per night), so a little back-of-the-envelope math, at $250 per night they were making at least $7,500 per unit, per month. With 45 units, that is up to $337,500 per month, which totals up to around $4 million per year. That is assuming they always had 100% occupancy, but with the short term leasing options offered on Airbnb mixed with the high demand for housing in the Bay Area, they likely had no problems filling rooms.
While searching for an apartment in the last month, I visited a “Crash Pad” which was renting for $2,800 per month. If you’re curious what a “Crash Pad” is, it’s a room barely large enough to fit a full-size bed inside a home shared with at least another eight tenants, all of which were sharing one bathroom. There was a guy living in the garage, another in the living room, and individual rooms were being split with a divider to offer additional “privacy”. The landlord is making at least $20,000 per month, over $250,000 per year on this one property.
Luckily, in the case of the Lee couple, they weren’t very smart in hiding their tracks. According to the fascinating piece of investigative journalism by the SF Chronicle, there were a number of flaws in their plan:
“When inspectors came calling, the Lees took what the city called “far-reaching, devious” steps to portray the apartments as being legitimately rented to long-term tenants: enlisting friends, family and associates to pretend that they inhabited the units; drawing up fake leases; and staging the units to appear lived in.
The Lees weren’t exactly criminal masterminds, however. The apartments all had identical staging, which the city described: “They had the same Costco food items scattered about, the same arrangement of dirty breakfast dishes in every kitchen sink, same personal products in each bathroom, same damp towels artfully draped over doors as though someone had recently showered, the same collection of shoes and clothes in closets, and the same houseplants in each apartment.”
In addition, they used the same IP address to create Airbnb host accounts for 13 of the listings.
The 14 properties were in scattered neighborhoods, including Pacific Heights, Nob Hill, the Mission and North of the Panhandle.
Many were upscale, with prices quoted on Airbnb of $250 to $500 a night. One Pacific Heights listing for an “exquisitely renovated home” rented for $395 to $595 a night, with a three-night minimum, according to Herrera’s 2014 complaint.”
In the last year, the housing crisis in San Francisco has led to stricter enforcement of rental laws which went into effect earlier this year, leading to 50% drop in these illegal listings. Airbnb now enforces a “one host, one home” policy in the city, which prohibits hosts with multiple listings.
“These are not the type of hosts we want on our platform and are glad the city has the tools it needs to enforce the rules,” Airbnb said in a statement.
It’s easy to take money by exploiting people. Hopefully cities begin cracking down on this slumlord-like behavior and make the risk far higher than the reward for anyone considering this revenue stream.
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