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Just a few short years ago, the short-term rental market in Toronto was booming. Smart investors (us included–read our original blog about it here) took to renting out their condos to tourists and business travellers, from a week to a few months at a time. Margins and cash were great (we were getting $3,000 a month from each of our 500 sqft condos that would normally rent for $1,400 a month). The competition was low, and demand was strong (we were booked more than 85% of the time for four years in a row) – who doesn’t love an affordable alternative to an expensive hotel? VRBO and Homeaway.com were the ticket to quick cash and reliable short-term tenants. What could possibly go wrong?
Airbnb supercharged the short-term rental business. With a sexy app and a new younger target market, Airbnb made it easy for people to rent out their condos for a few days at a time. Sleeping over at your boyfriend’s for a few days? Rent out your condo. Need some quick cash? Move back in with mom and dad and rent out your pad for the month. What used to be a proper business for many people turned into the norm, and with that, a slew of problems surfaced.
To be fair, the problems aren’t restricted to Airbnb guests and listings anymore…the whole business model has changed. Here’s how:
Bad Guests – The media loves a good horror story, and short-term rental guests have provided more than a few great stories. There was the nightmare in Calgary – where Airbnb guests caused $50,000 of damage during a drug-induced orgy and another nightmare in Queen West in Toronto earlier this year. With a different target market comes different problems and owners have had to deal with noisy guests, damage and even criminal activity going on in their homes.
Home Insurance – Insurance companies are more than familiar with the short-term rental concept, and many won’t honour policies if something goes wrong. Home insurance was never meant to deal with a parade of strangers traipsing through your home. If you’re renting out your house or condo short-term, be forewarned.
Increased Competition, More Vacancy and Lower Rates – Gone are the days when there were 75-100 listings in Toronto. As of writing, there are 565 short-term rentals available on VRBO.com, 583 on Homeaway.com and more than 300 on Airbnb. And we all know what more competition means…more vacancy and downward pressure on prices.
Condo Board Rules – With so many new listings, condo boards all over Toronto got wind of residents renting out their condos short-term and took swift action. While many condos already had rules in place that restricted tenants to minimum 6-month leases, those rules weren’t really enforced until recently. And condos that didn’t have any rules in place quickly passed new resolutions. Not abiding by a condo board rule is a dangerous game these days and the consequences can be severe.
Short-Term Rentals Have Become Even More Short-Term – While the pioneers of this business restricted rentals to minimum one week at a time (usually starting on a particular day of the week), the Airbnb model has necessitated that owners make their homes available for much shorter periods of time – renting to someone for a few days isn’t uncommon. Unfortunately, shorter-term stays mean more cleaning expenses and more orphan days in between guests – and that hurts the bottom line.
The Scammers – Unfortunately, we’ve seen a lot of scams come out of the short-term rental market. From people advertising properties they don’t own and collecting payments via Western Union for properties that don’t actually exist, to people entering long-term leases with landlords and then re-renting out those condos short-term (thus putting the actual owners at real risk), to the short-term renter who refused to move out, we’ve seen a lot of scams.
Now don’t get me wrong – Airbnb and the other short-term rental websites provide a valuable service to consumers, and as a consumer, I’ll certainly continue using them. But as an owner – well, we sold our condos last year and got out of the short-term rental business.
They say that all good things come to an end. As an investor, the short-term rental market was great while it lasted. But if you’re considering getting into the business…well…beware the wolf in sheep’s clothing. There are lots of other great ways of making money in Toronto real estate – get in touch and we’ll be happy to show you how!
Do I have any recourse in order to rent out a condo before its registered? The builder’s rep found out and called me to say, I am not allowed to rent it’s not mine until it’s registered (which I know). Other owners have rented theirs using MLS.