Airbnb has evolved exponentially over the past few years, and if you’ve found yourself here at our blog, you’ve likely heard about just how great of a way it can be to make more money from an investment property in comparison to traditional long-term rental. As a property management firm here in Canada’s capital, we’ve seen short term rentals find a lucrative niche in our portfolio. Millions of people currently utilize the platform to book unique experiences around the world, and in Ottawa this is no exception. While the opportunity could be large with our city seeing 10 million visitors annually, there are a number of items that should be weighed carefully before you make any decision.
The Bright and Sunny
Earnings are Greater for Short Term Rentals
At the end of the day, you’re involved with managing a property in Ottawa in part because you want to make money. Some of our initial numbers suggest that short term rentals can generate 135% more revenue in comparison to long-term rentals. With such a big differential, it really is worth your time to take a look at the numbers a little closer and understand what could possibly play into that difference.
Being an alternative accomodation, it should have been nearly impossible to not have heard about how disruptive services like Airbnb are. The hotel industry sees Airbnb as a threat, and they have been very vocal. Their arguments have been presented with an energy similar to the Taxis vs. Uber dynamic. For you, the numbers are important. In a report published in September 2017 for the Hotel Association of Canada, CBRE presented that hosts renting two or more entire-home units were the fastest growing hosting segment, bringing in over $238 million and seeing a 134% growth in revenue over the past two years. In Ottawa, this growth was 142%, tied to a 111% growth in the number of multi-unit hosts, which themselves represent 9% of the local market. This means that most hosts in Ottawa are single unit hosts. Growth in 2018 with likely continue, though we believe it will slow slightly as the early entrants have already made their mark and the regulatory environment remains unclear. In either case, it’s a great revenue opportunity, and competition is still fairly low in the city.
If you’re interested in the market data that they used as the source, check out AirDNA, a service that processes data and presents from Airbnb.
Exposure to Millions of People, Worldwide
Airbnb is growing at a rapid rate, providing you exposure to millions of people worldwide. With competition in the city at a low-medium level and , there is still time to capitalize on the audience that they’ve managed to reach. Of course, it will take some hard work and creative marketing (off the platform as well), but vacancies could become a thing of the past if you play your cards right.
Specialist Tools At Your disposal
Airbnb isn’t just a marketplace where you list your property and are left to your own devices. Instead, the platform offers an array of magnificent tools to help you out. Instant book allows guests to book automatically which reduces communication, and smart pricing assists with your pricing strategy so you don’t always have to adjust it manually. You are also better protected through guest profile verifications, which connect guests to their other identities, providing some better assurance that they are who they say they are.
The platform also can collect and remit some taxes at the point of payment. Did we mention that they handle all invoicing and payment?
All Disputes are Mediated
When it comes to dealing with guests on a regular basis, there may come a time when you have a disagreement. Whether it’s an argument over services provided, or a dispute over damages, it can be difficult to handle and can put your reputation on Airbnb and elsewhere at risk, harming future profitability. With Airbnb, customer support is included and you will also receive support through the whole process. As a landlord, it can be difficult to go it alone, and having such a service provided to you for free is truly priceless. Of course, you don’t want to have to use dispute resolution if you can avoid it! It’s key to your success on the platform that you offer great service to your clients and make their stay with you as enjoyable and stress free as possible.
Airbnb Protects Your Investment with Guarantees and Insurance
Something very important to think about when deciding whether to become a host on Airbnb is the safety of your home, property, guests, and neighbours. As 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. In addition, you are automatically eligible for $1,000,000 in coverage as part of the Host Guarantee. This is not insurance and is not a replacement for homeowners or renters insurance however, and there are limits on certain kinds of items or places such as personal liability and common areas, which are not covered. If you’d like more details, check out their terms. In addition, you can rest assured that guests that cause trouble can have their access to the platform revoked. This goes for hosts as well, so be responsible!
Before beginning your journey with Airbnb, immediately consider your location. In Ottawa, as in most cities, the downtown core is a great place to operate, while the outskirts of Orleans or Nepean might see orders of magnitude less demand. Location is everything, so consider your distance to amenities (personal and business), entertainment, and transportation corridors before you list.
Prices Can Fluctuate
With short-term rentals on a site like Airbnb, prices fluctuate all the time, which means you need to constantly be managing your listings to ensure your bookings don’t dip. Reasons for the fluctuations vary, such as special occasions in your area, your location and supply and demand.
Local Laws and Regulations
Being so disruptive, the short-term rental market is still largely unregulated around the world. This has left authorities desperately trying to conjure up regulations without much of a framework. In Ottawa, specific regulations are still shaping up, but we can expect to look to Vancouver and Toronto for examples of what regulation might look like. You will likely be required to register with the city and will face limitation on the when, how, and for how long of the rental. In general, it will be important to remain compliant with currently existing regulations, including fire and building safety codes, while keeping an eye on the situation.
With an eye on the future, length of stay is a major consideration. For example, in December 2017 Toronto City Council passed a vote on rules that would restrict listings on Airbnb to registered primary residences, banning listings of secondary suites such as basement apartments for short term rentals less than 28 days. In this case, it seems that a tenant of a secondary suite may still list as long as that tenancy is their primary residence, and they meet the requirements of these proposals, provincial law, and their lease terms. Restrictions were also proposed on the number of nights that a room may be rented out; 180 nights being the maximum for the year unless the homeowner was present, in which case there would be no limit for up to 3 rooms.
As the saying goes, the only things certain in life are death and taxes. Almost everyone hates paying them, but you’ll need to be compliant regardless. While we suggest talking to your accountant about the exact implications, know that you will need to report your income from Airbnb and potentially remit provincial and even municipal taxes. Last year in Ottawa saw the city extending a mandatory 4% hotel tax to short term rentals like Airbnb. This became effective on January 1, 2018. With the HST in Ontario, this takes taxation to 17%.
Other considerations around tax include deductible items, pro-rating deductibles, and the form of the income. If you are offering services to your guests above and beyond their room with you, you might be considered to be operating a business. Keep good records and get assistance from your accountant to keep you in the clear.
Hosting Takes Effort
Regardless as to where you start, your journey on Airbnb isn’t going to be all smiles and laughs straight away. You’ll need to be a responsible and attentive host, and it will take time to establish yourself on the platform. During the initial phase, you may need to price your listing lower than your competition, just to build a presence and a good number of 5-star reviews. In addition, you’ll need to work your way up the search rankings – Airbnb love activity, so your response time to guests will need to be fast. As part of your hosting plans, we also suggest hiring a professional real estate photographer. Professional photos can be a real boon to the performance of your unit on the platform.
Member of a Condominium Corporation?
If your property is part of a condominium corporation, you may not be able to legally post your property for rent on Airbnb. These corporations and others similar to them, like incorporated homeowner associations, have the power to dictate what you can and can not do in your unit.
Marijuana, Smoking, Alcohol, and Other Substances
Beyond your coverage with Airbnb through their host guarantee and liability insurance, consider closely your stance on the usage of substances in your apartment. With Ottawa being the city that it is, we expect that Marijuana usage in particular will become more prevalent in the units that we manage. Regardless of the legality, make your stance on substance use well known to your occupants through your communications, listing, and house rulebook. Consider the implications of requiring a security deposit to cover incidentals like spills on the carpet or smoke cleanup.
You Still Need Insurance
While we mentioned Airbnb’s $1 Million coverage and liability insurance, you will likely still require your own personal insurances to provide you with adequate protection. At a bare minimum, we suggest that you speak with your insurance provider and let them know that you intend to rent out your property. Protecting yourself and your investment are essential.
Ultimately, the decision to use a short term rental platform such as Airbnb comes down to what you want to accomplish with your rental property. The reasons why you’ve decided to become a landlord could be many, but in any case you will have to consider your personal limits, timelines, and risk profile as an investor. Whether or not you have time, if you’re interested in adding Airbnb services to your portfolio, consider partnering with a property management company.
If you would be interested in how we could provide help to you in your journey with your investment property, stay tuned to our blog or feel free to give us a call or otherwise contact us. We do things a little differently here at Fahel and Co., and we’d love to help you exceed your goals!
Looking for a risk free way to increase your rental income? Make sure you file for your annual rent increase. If you’d like some help with the process, rely on our expertise and our fully managed rent increase concierge service.