I have now heard from a couple of people who have purchased investment condos and put them up on AirBNB for short term rentals. A 1 BR condo in a half decent downtown or uptown location would fetch around $1,600 per month on an annual lease. Boring! Advertised rates on AirBNB can be upwards from $150 per night. If your condo is rented for 250 days, that would earn $37,500 per year; and that is on a vacancy rate as high as 32%. The ROI is “simply irresistible”. This model scales well and you could easily quit your job and have your income replaced with this passive income. Should you do this as well?
- Condo Corp – Most condo corps in buildings have condo by-laws that prohibit tenancies of less than 6 months (some are 1 year). Would you care if your neighbour’s unit had a turnover of strangers every other day? Expect costly legal action from the condo corp.
- City Permit – I know that the City of Mississauga and Toronto allow short term term lodging with a Lodging permit. I believe this bylaw exists for offering temporary short term stays in your residence and never accommodated multi-unit buildings, especially investment condos. Are AirBNBers getting permits from the City? (How about those Uber drivers?)
- Hotel Taxes – there are strict rules for operating one, two night, and short term vacation rentals. Your operation is now competing with Hotels that are required to collect and remit special Hotel taxes.
- CRA – Unlike residential tenancies, short term rentals are subject to HST. I figured if someone has already broken rules 1, 2, and 3 they’re not going to care about HST or income tax implications.
- Insurance – Your insurance policy was based on either you occupying the unit or as a rental unit. It does not cover one night or short term rentals. What if someone got hurt… or worse?
- Mortgage – Just like insurance, short term renting will be in violation of your mortgage conditions.
AirBNB is a great success story and for the right type of property it’s meant to be a win-win. Unfortunately, some people have bought into the hype since there are so many condo units in the GTA that are being offered under this business model.
My advice: if you’ve purchased an investment condo to derive rental income, I would not touch this business model with the proverbial ten foot pole.