What Condo Investors Need To Know Before Listing On Airbnb

What condo investors need to know before listing on airbnb

Airbnb rental properties have proliferated in recent years as listings have doubled since 2016 with 19,255 homes currently in Toronto. This may be due in part to the city’s low vacancy rate or simply because Toronto is a booming city on the world stage. Whichever the reason, we know first-hand that there is money to be made in this type of investment. The numbers suggest that short term rentals can generate 135% more revenue in comparison to traditional, long term ones.

Alex Dagg, public policy manager for Airbnb Canada says typical hosts are earning $3,900 (in positive cash flow) annually from renting out their unit for three to four nights a month. Statistically, Airbnb guests in Toronto tend to stay longer than traditional guests-- on average, they are staying 5.4 nights at a rate of $140/night for a one bedroom accommodation.

Millions of people currently utilize this marketplace to book short term rentals around the world and Toronto is no exception. While the prospect of housing tenants at whatever rate you decide to charge, in a city seeing approximately 43 million visitors last year alone, there are a number of details to go over and weighed carefully before taking on this type of investment.

 

Investor Short Term Rentals In Toronto Airbnb

Location, Location, Location

Like all great real estate investments, location matters. Your property’s attractiveness to potential tenants is critical to ensure that you do not have issues with occupancy rates. The downtown core is a great place to operate, while the outskirts near universities, vacation locales, and employment hubs are also great places to consider. Location is everything so keep in mind the distance to things like transit, amenities, and entertainment before investing. It is also important to understand that prices fluctuate by season and location. This means that you will need to stay on top of your listings to ensure your bookings don’t dip. Reasons like special events in the area can cause prices to fluctuate.

 

Investors Airbnb rental rates fluctuate

Rates Can Fluctuate

Although short term rentals command a higher rate than traditional rentals, if you are looking for stability and financial consistency as a landlord, then this detail might make or break your Airbnb listing dreams. Short term properties can make more in one week than what the property commands from one month on a long term lease, however, long term tenancies require a monthly rent to be paid. Traditional rentals provide a peace of mind as the knowledge that residual income will be received directly into your bank account at the beginning of every month. This allows you to budget and manage your finances accordingly. It also helps with tax planning. Much like a hotel, it’s nearly impossible to coordinate one tenancy with the next in the effort of trying to run at full capacity all year round. When you factor in void periods, short term renting tends to generate erratic lump-sum income.

 

Airbnb Condo Investors Must Pay Taxes

Taxes

While we are on the topic of income and budgeting, a big cost to consider is your budget for furnishing the property. Yes, you will be able to claim certain items back in your taxes, but you will need to declare all of your Airbnb earnings at tax time. If this income is in addition to your annual income, you will need to consider the tax implications. Last year, Ontario saw the province extend a mandatory 4% hotel tax on short term rentals like Airbnb. Once you tack on HST, this takes taxes for a short-term rental property to 17%. Other taxes to consider are deductible items like pro-rating.

Additionally, if you are offering other services to your guest beyond the room, you might be classified as a business. It is always important to keep a good record and check in with a tax agent before you start renting your property. It is your responsibility as a landlord to be well informed on how your taxes need to be filed.

 

Airbnb Condo Investors Insurance

Investment Protection

Another thing you need to be on top of is your insurance status. You’ll be renting out a furnished property so there is more risk associated with damage to property and your standard home and contents policy may not cover it. In this market, a high number of tenancies is a good thing, however, this means greater wear and tear to the condition of furniture and decorations. The cost to repair and/or replace increases with every move-in and move-out. The cost for this is not necessarily covered by insurance unless a claim is made based on sizable damage made by guests. As a part of your Airbnb account, you automatically have Host Protection Insurance that provides liability coverage in case your guests are injured or there is property damage. Plus, you are eligible for $1,000,0000 in coverage as part of the Host Guarantee. This is not to be considered as a replacement for homeowners or renters insurance as both parties still need to invest in their own adequate coverage. Protecting yourself and your investment are essential-- take a look at Airbnb’s insurance terms here for further details.

 

Airbnb condo investor laws Toronto

Local Laws

Last month, Toronto City Council voted 21-1 in favour of asking Airbnb for assistance in taking down listings that failed to meet previously approved regulations. According to a coalition for fair regulations around home-sharing (Fairbnb), Airbnb stands to lose 8,000 listings if they agree to delete non-compliant listings--however, at the moment, it doesn’t look like Airbnb will accept the request. You see, the short term rental debate is a hot topic in the city and many condo buildings have already pumped the breaks on owners and tenants posting their suites on rental sites like Airbnb. As hot as this topic may be, the city is yet to make any official changes to the policy.

In 2017, City Council recommended a registration and licensing program for all short term rentals in the city. They voted 40-3 in favour of new rules that would require owners of short term rental units to register their unit and pay a $50 annual registration fee. Short-term rental companies would pay a one time fee of $5,000 plus $1 for each night booked through the company. This new policy would also cap rentals to a 180-day limit as well as preventing owners from owning multiple short term rental properties.

As these new policies continue to hang in limbo, Toronto’s Local Planning Appeal Tribunal will meet again in August to further discuss short term rentals in the city. This means that at any time, the rules may change and you as an owner may be required to pay-up. It is also likely that short-term rentals will be voted as a violation of condominium rules, so it is first and foremost important to know which buildings allow this type of rental before investing in a property.