Warning to you "Airbnb'ers"

Here is a letter that circulated amongst the hotel owners in February.

Hi All!

Some of you may remember me from the AHA days when we were fighting to keep our businesses afloat during the dark days of unwelcome cartel activity in our area.  Now we face another attack on our livelihoods - this time more benign, but equally destructive - competition from home owners renting rooms/suites on Airbnb.  These people pay no taxes, are not required to jump through all the government regulatory hoops that we do, and as a result are able to undercut us significantly on price.  Consequently, our clientele is increasingly being lured elsewhere.  For those of you who have not yet renewed your business license, we’re now required to produce copies of all our documentation (as we did for the Tourist Board) and the fee will be going up - for some to $10,000.00 peso!

There are also, apparently, a number of other hotels in the area, also operating under the government radar, whom it would be in our interests to identify & bring to the attention of the authorities.

In the light of this, some of us feel that it’s appropriate that the government help us to level the playing field somewhat (as they do in other countries) by requiring all those who’re advertising accommodation internationally, and receiving rental income, to pay taxes at the very least.

If you know of anyone else operating a legal hospitality business in the area, who’s not on this list, please let me know.

We’d like to arrange a meeting for us all to get together to discuss this with a view to making an appointment to meet with our Delegado, Javier Degollado, in Chapala.  In this regard, there’s definitely weight in numbers!

Miguel, at La Nueva Posada, here in Ajijic has kindly offered to host this meeting & we’re proposing 3pm next Thursday, 2nd March.

If you’re interested in attending (& I hope you’re free), please send me an email to confirm your attendance.

Look forward to seeing as many of you as possible next week!

Kind regards.

And here is their follow up report after meeting with the Mayor.

Our Petition had been presented by Michael Eager on Monday, & the President took time to familiarize himself with our proposals whilst his heads of departments joined us. The meeting was, we think, productive. The President spent considerable time outlining his many plans to really put Ajijic & Chapala not only very firmly on the tourist map, but also to expand the number of visitors with, amongst other things, a proposed business convention centre, as well as encouraging more professional Mexican retirees to visit the area from Monday to Friday, when the towns are less busy & accommodation isn’t at a premium. He also confirmed that the government is still pursuing a designation of “Pueblo Magico” for Ajijic, so there should be further improvements forthcoming in support of that endeavor.
As to our specific request for a leveling of the tax & regulations playing field, for all hospitality providers, he was very supportive, & his staff have been instructed to start the process of identifying all the people who operate hotels/B&B’s or offer accommodation “under the radar”. They will be visited & “invited” to come into the fold. Failure to respond to the invitation will, supposedly, lead to fines & closure. I think we were all left a little skeptical about the penalties for non-compliance & also for the ability of the “inspectors” to find all the culprits. However, it is a positive start & time will tell how efficient/effective their efforts are.
On a very positive note, the President encouraged us to meet with him again & to take a positive role in providing input to the various initiatives he plans to implement, as members of a Tourist Advisory Board. These ideas included, for instance, improving the situation with taxi availability in the evenings!
He proposed that we join with his heads of departments into a WhatsApp group, so to this end, we need everyone’s cell phone number so that you can be included, & we’ll have access to all the people in charge of planning, licensing, etc. We can just send them a message, or phone them if we have a query or problem. A very positive move! Please let me have those #’s ASAP.
He was also receptive to the challenges that some people were experiencing with producing the documents necessary to complying with the new licensing regulations. He encouraged those who have not yet renewed their licenses to do so as soon as possible & to advise the office that the President has agreed that the license can be renewed, with the proviso that obtaining/producing all the documents may follow more slowly. He stressed the importance of renewing before the inspections begin!
A meeting held on a regular basis & offering to share information/ideas is very helpful & productive & is maybe something we should consider doing in the future. Maybe once a month? We did good work with the AHA group a few years ago & feel we lost a valuable tool when we let it lapse. Perhaps you could indicate your feelings about this?
The President seemed to think that his staff will have rounded up all the “illegal” hospitality businesses within the next two months. I don’t think we were equally optimistic. Maybe a request for a “follow-up” meeting with the President & his heads of department at the beginning of June would be useful? Again, please let me know what you think about that.

Have a good week-end!

I imagine they will get right on this as soon as they have apprehended the "serial dog killer"........

You're legal, right?

AirBnBers should get legal, it's only fair. Won't hurt their business, and I imagine they can well afford it. How much does it cost you, CB, to be legal?

With changing trends, people choosing UBER instead of taxis and travelers preferring AirBnbs over large, impersonal, often chain hotels, I imagine we will be hearing more from these two groups of businesses.

Everyone has a different situation. There is a huge difference in licensing/regulation requirement's from a multi-roomed hotel/B&B type operation and a ma & pa 2 room rental out of their house. These people will be learning that. You are best to consult with a lawyer, a tax accountant and the Muni to ensure you are legal and paying the proper taxes. That is what I did.

Spencer is quite knowledgeable on the requirements of both.

CanuckBob wrote:Everyone has a different situation. There is a huge difference in licensing/regulation requirement's from a multi-roomed hotel/B&B type operation and a ma & pa 2 room rental out of their house. These people will be learning that. You are best to consult with a lawyer, a tax accountant and the Muni to ensure you are legal and paying the proper taxes. That is what I did.

Spencer is quite knowledgeable on the requirements of both.

We consulted Spencer recently on another matter and mentioned the AirBnB matter as a possibility for the future, and he has a complete package together for those interested; all legal. He indicated that some people are already using this, as there is a different category for those in the "hospitality" business rather than the "landlord" one. In the climate Bob has shown above, people would be well advised to get legal before renting out the spare room.

AirB&B has becoame an issue in many NOB resort areas. The hotel lobby has gotten government to create and enforce rules for homeowners. Las Vegas is really trying to corral AirB&B operators. I wondered why a LV visitor would stay in someone's home as opposed to a casino hotel. When I worked there, rooms were relatively cheap, as was food. Anyone with a bit of saavy could get a little play going, get rated and earn some comps.

Now the resorts are even charging for parking! I guess ABB is making an impact everywhere. 3 out of my last 4 stays in Guanajuato City were in long term AirB&B homes. I think paying taxes on the revenues at the same rate hotels do is a fair expectation. If an AirB&B host is willing to undercut a hotel and pay taxes, then the hotel industry is going to be fighting an uphill battle. When people are willing to settle for a room with zero service vs a hotel, the overhead of running a full service hotel at lower, competitive rates gets difficult.

On the other hand, some of the hotels and B&B's here are vastly overpriced.

CanuckBob wrote:On the other hand, some of the hotels and B&B's here are vastly overpriced.

That is the truth. If you can offer a pleasant little casita for as low as $47 a night, that's a good deal. There is a B&B in town that's even less, but I haven't heard any good words about it.

Our rental has pricing from $45 to $80 a night and are looking into the situation. We are full until mid-March 2018 with just a smattering of empty weeks here and there. For people who want a ealistic idea of what living here is like AirBnb is perfect. Our tenants who decide this is for them tend to return for rental or buying trips and stay in a B&B because they want to focus their time and share information iwth other patrons and staff. I do know several investors in housing who work within the framework of a management company have been busy getting "legal" on their longterm rentals at the advice of the management companies. They say its going to add almost $150 per property to the monthly rental. This being the increased cost in taxes, accountant and reporting and increased fee to the management company to over see all that new paperwork. I am thinking this is why all of a sudden housing that used to be $800-1000 a month is now $1100-1300 a month.

Actually I find AirBnB to be a crappy service. I don't like their software, their pricing matrix or their search parameters. We get very few bookings from AirBnB. The majority is either VRBO, TripAdvisor or direct through our website. We are getting repeat customers booking one or two years in advance now. If you want to be in Ajijic centro, during primetime, at a reasonable price, that is what it takes.

solajijic wrote:Our rental has pricing from $45 to $80 a night and are looking into the situation.  We are full until mid-March 2018 with just a smattering of empty weeks here and there.   For people who want a ealistic idea of what living here is like AirBnb is perfect.  Our tenants who decide this is for them tend to return for rental or buying trips and stay in a B&B because they want to focus their time and share information iwth other patrons and staff.  I do know several investors in housing who work within the framework of a management company have been busy getting "legal" on their longterm rentals at the advice of the management companies.  They say its going to add almost $150 per property to the monthly rental.  This being the increased cost in taxes, accountant and reporting and increased fee to the management company to over see all that new paperwork.  I am thinking this is why all of a sudden housing that used to be $800-1000 a month is now $1100-1300 a month.

It goes beyond belief that a house owner renting to a full time resident is going to charge 150-200 more dollars a month because the house owner now has to pay taxes that they should have paid all along. Taxes are a cost of doing business. Many or most long term renters are going to be looking for unfurnished rentals that do not attract IVA. There might be a business opportunity here for furniture rental. I also wonder how house owners are going to exceed the annual rental increase of 10% allowed by law in Jalisco. 3 or 4 years ago I was asked for a rent increase that way exceeded the 10% and I pointed that out to the house owner who insisted, so I left and the house is still empty.

Dave, when you consider that a person with, for instance, one furnished casita renting for around $500 US a month is expected to pay around 35% in taxes whether it's rented every month or not....perhaps you will see that there's two sides to the story. Why the government hits the "furnished" so hard is a mystery to me. Most people renting temporarily, such as snowbirds, are not inclined to rent furniture for their stay. They want "ready to go" down to linens and silverware.

I do agree that any rent increase over 10% is unfair to the tenant, no matter what the landlord's problems are.

Correction to above.......you only pay income taxes if your are earning money. If it is empty you pay nada.

Dave, everyone has to pay the income tax (furnished or unfurnished) up to 35% of income hence the potential increase in rent prices. The difference between the furnished and unfurnished is that if furnished you have to also collect and submit the 16% IVA. If someone is totally legit it could potentially add 51% to the rental price for the landlord to break even. This will be a lot more than $200 per month........

BTW.....the government doesn't charge the full tax rate right out of the gate. State tax is immediate and is 3% of monthly gross. Federal tax is free for the first two years then 10% of the tax rate per year. So in year three you pay 10% of the tax rate, in year four you pay 20% of the tax rate and so on. You don't pay full rate until the 13th year.

CanuckBob wrote:BTW.....the government doesn't charge the full tax rate right out of the gate. State tax is immediate and is 3% of monthly gross. Federal tax is free for the first two years then 10% of the tax rate per year. So in year three you pay 10% of the tax rate, in year four you pay 20% of the tax rate and so on. You don't pay full rate until the 13th year.

Question: are you talking about the tax rate for a "regular" landlord or for a person with a business license under the "hospitality" category? I'm not clear on it.

Personal income is personal income. It doesn't matter whether you are a garbage collector, a landlord or a hotelier. Everyone has to pay income tax if they are earning money. The tax rate is the tax rate. I'm sure there are different steps for different yearly incomes just like NOB.

And of course it depends on how much you decide to declare each month (yes, you have to submit your income every month on-line) and what you decide to "write off" however taking write offs against your property will nullify any capital gains exemptions when you go to sell the property as it would be deemed commercial.

The bottom line is that if you are in the rental business (or any business for that matter) and earning money within Mexico you need to be, at minimum, paying income tax. Some businesses also require yearly licensing and must meet regulatory requirements.

I know how the taxes go Bob which is why I indicated that full time renters may be looking for unfurnished rentals to reduce the impact of IVA. But this is not new. House owners who have been renting for years have always been subject to taxes, both income and IVA for years. Spenser has been warning about that also for years.
My argument is that rental rates are driven by the market not by the fact that some owner now has to pay taxes that they should have been doing all along and therefore, will be making less money than in the past. Too Bad! Join the real World. It gets down the fact that if landlords push the price up too far, full time renters are going to drift away to areas where the rents are cheaper and this area will suffer by the loss of those renters who keep the businesses here going in the non snowbird periods.
I really don't care what snowbirds pay for their winter rental. I do know that market rates are of great interest to most of them and there are other areas of Mexico and other countries to which they can go at lower cost. Push the costs too high and they will go away.
I don't know what makes people come here from other countries and think they can carry on a business (inc rentals) and not have to pay tax to either Mexico or their country of residence/citizenship.

My rental management friends say that what will happen is that the rental contracts you see now with a clause stating, "renewable ...." will end and each rental year will be a new contract with a new price. That is how they will get around the 10% raise limit. It is how they do it now with some landlords who want market rates for their properties. One vaguely said something about needing month-to-month contract to break the contract continum but I did not catch it all.

AirBnb does sometimes change the price, auto book to some matrix I do not know anything about but since I look everyday I change it back. VRBO changes are too expensive, Trip advisor yech and I don't need a website. We try not to rent short term to anyone who hasn't been to interior, small town Mexico. I will never again rent to a complete newbie, especially for the winter, because they require too much attention.

It would be great if there were more unfurnished rentals. The market is mature enough and there is enough furnishings available now that furnished is no longer a necessity. There is a Rent-to-Own furniture place at the Aur Bodega on the Chapala highway.

Dave, I will wager that 95% of the current landlords are not paying any income taxes at all. If they all take a 35% hit there will be price increases. However as I stated above it takes 13 years after entering into the tax system to pay that full rate so increases shouldn't be immediate.

I may be lacking in imagination, but I can't see "snowbirds" renting an unfurnished place and being willing to rent or buy everything they will need, including silverware and linens, for the few months they are here.

Well at the end of the day they couldn't even sort out that Hacienda del Lago "no license or permit" issue so to think they will be cracking down on all the "illegal" rentals around here is absurd. Sure they will go after the obvious ones that are running large hotels/B&B's quite openly with street signage, local advertising, etc. but even then a few pesos will get any inspector to carry on down the street.

Unfortunately, I think this group is pissing into the wind. This municipality has much bigger fish to fry IMO. And for the record.....I don't belong to this group. I am a "mind your own business" kind of guy, especially here in Mexico.

One thing the muni is good at is collecting the income taxes once you are in the system. My accountant screwed up paying my taxes in January and by Feb. 3 there was a guy from the muni office ringing my door bell and presenting me with a fine. Of course my accountant paid the fine for me along with the overdue taxes....