The popularity of Airbnb, VRBO and similar platforms in Scottsdale has not just been a boon for homeowners looking to make extra money; it has also spawned an industry in which real estate investors purchase homes and condos solely to use as short-term rentals.
Neighborhood Ventures is a Phoenix-based company that uses the crowd funding model to make real estate investment more accessible to everyone with minimum investments as low as $1,000.
“We launched neighborhood ventures about two years ago with the idea that we wanted to get more people involved in commercial real estate investing,” co-founder Jamison Manwaring said.
Manwaring, a Scottsdale resident, said changes in federal law allowed the company to lower the barrier to entry for real estate investing.
“Real estate historically has done very well from a wealth creation and wealth preservation standpoint, but it’s normally just rich people,” Manwaring said. “So we said let’s use crowd funding to let in a lot of people and that’s why we launched.”
The company, which had already raised over $1 million to purchase apartments in Tempe and Phoenix, recently turned its sites to Scottsdale.
It raised $550,000 from 87 investors to purchase an eight-unit apartment complex in the Holiday Park neighborhood that was in rough shape.
The company plans to use the complex as a full-time Airbnb.
The company is in the process of renovating the property, including new landscaping and paint. It will also add new appliances, flooring and kitchens to the units.
Manwaring said they are also improving safety by ensuring a partially-filled in pool is filled correctly and removing the pool deck.
Beyond improving the property itself, Manwaring said the property gave locals a chance to invest in their community.
“We have a lot of Scottsdale residents who have invested with us,” Manwaring said. “That’s the nice thing; you can invest in your own neighborhood.”
Calling it the “democratization of capital," Manwaring said crowd funding allows local people to keep their investments local.
“You control it; you decide what you invest in…So it’s not all handled in New York and Boston where we give the smart guys the money and we let them do it,” Manwaring said. “This is all local people, local investors and both founders are here.”
Holiday Park fears
Though the project will result in the renovation of a dilapidated property, some in the city are concerned about the prospect of a vacation rentals coming into Holiday Park — one of the last bastions of affordable housing in Scottsdale.
Two bedroom apartments in Holiday Park can rent for around $1,000 per month, according to online listings.
That is well below the citywide average of $1,336 for a 2-bedroom unit, according to Apartment List.
Nancy Cantor is a longtime community activist and Scottsdale resident who lives near Holiday Park who has advocated on behalf of neighborhood’s residents in years past.
She expressed concerns that dropping in eight short-term rentals could disrupt the community and displace residents.
For Manwaring, the project is a return to the property’s original intended use.
“If you go back to when Holiday Park started, it was actually more vacation rental type properties,” Manwaring said.
Classified ads in the Scottsdale Progress in 1958 and 1959 show that units in Holiday Park were heavily marketed to vacationers for weekly and monthly rentals, though some properties did offer six-month and one-year leases.
Cantor agreed, saying the properties originally catered to seasonal visitors.
However, according to Cantor, the neighborhood transitioned away from vacation homes over three decades ago and became affordable housing, primarily for those working in the service industries that were the backbone of Scottsdale’s tourism and leisure industry.
These days, many of the Holiday Park properties still offer affordable rental options, though the neighborhood is in transition, Cantor said.
Investors already purchased a handful of the properties, renovated them and increased rents.
Four Holiday Park properties are required to remain affordable housing because they were purchased using federal funds designated for that purpose.
However, the affordability period for those properties expires between 2023 and 2027, at which point the owners can increase rents or use them as short-term rentals.
Cantor hopes some of those properties will remain affordable.
”I hope that there will be some people with a conscience who understand the need,” Cantor said.
Manwaring said he knows of at least one other property owner in the area who plans to turn their units into short-term rentals as well.
Cantor is skeptical of the model would benefit the neighborhood.
She puts much of the blame on the state government due to a 2017 law that prohibited cities and towns from regulating short-term rentals.
“I haven’t seen anything more detrimental than what the legislature did to the cities and towns,” Cantor said “It’s tied their hands, and it punishes neighbors and the local residents.”
Scottsdale Mayor Jim Lane has largely supported property owner’s right to operate short-term rentals, saying he believes it is a “constitutional issue of being able to use your property as you’d like.”
However, Lane acknowledged that purchasing a residential rental property operate as a short-term rental full time falls in a gray area, though it likely does not violate any local or state law.
“I think it is a gray area…It may be a something that has to be considered, but to this point in time we’re trying to handle it within the bounds as it’s been established legally,” Lane said.
One resident’s problem
Though the Neighborhood Ventures model may still be rare in the short-term rental game, it is not uncommon for investors to purchase single-family homes to be used on sites like Airbnb.
That means residents are regularly seeing these types of properties pop up in their backyard, especially in Scottsdale — which was ranked in the top 150 cities to buy a vacation rental property in the U.S. by Rented.com, which provides financial services to short-term rental investors.
“I didn’t even know what an Airbnb was,” said Scottsdale resident Patty Badenoch, who only learned about the platform when the frame for a new 2-story home popped up on the property that borders her home near Scottsdale and Chaparral Roads.
Though she was originally concerned about the height of the home, Badenoch is now concerned about its use because it could become a short-term rental.
Maricopa County Assessor records show that the home is owned by STR Ventures LLC, a entity that develops vacation rental properties. STR Ventures currently has two other properties located in downtown Scottsdale that it plans to use as vacation rentals, according to zoning applications on file with the city.
According to the Arizona Corporation Commission, STR Ventures is co-owned by a local real estate agent who advertises vacation rentals on his website.
Badenoch has long been a critic of the nearby Hotel Adeline due to loud pool parties that she said disturb the peace in her neighborhood.
Now, she’s worried the same thing could happen at the house next door.
Permits on file with the city show that STR Ventures is putting in a pool at the home.
In an email to city staff about Hotel Adeline noise complaints, Badenoch wrote, “And now we’ve got these lovely AirB&Bs (sic) invasions with their frat drunk parties that will soon take over our neighborhoods.”
Though those concerns still stand, it appears Badenoch did make headway on her other concern — the height of the home.
Badenoch originally contacted the city because she was concerned the 30-foot tall home was in violation of old height restrictions in her neighborhood, which is mostly made up of single-story homes, though she was unsure if those restrictions were still in effect.
Either way, the city does not enforce neighborhood restrictions such as CC&Rs or HOA rules.
“The City originally approved a new house at this location, which was 2 stories tall. Our zoning ordinance does not generally regulate “stories” in single-family zoning districts; only maximum height, of which there is a thirty (30) foot maximum for houses in this case,” Scottsdale City Planner Casey Steinke said. “Their original proposal met code and was approved for permitting.”
Following Badenoch’s complaints, she received word from the city that the owners agreed to remove the second story.
“It is my understanding that the proposal caused concern among some neighbors,” Steinke said. “The applicant then came in to revise the original proposal and removed the second story along with some other changes to the ground floor. The proposed height has now been reduced to 17 feet.”
Steinke could not confirm whether the change was made due to resident concerns, and the real estate agent who co-owns the property did not respond to a request for comment.
The real estate agent who co-owns the home did not respond to a request for comment.