Airbnb Short-Term Rentals Have Never Been So Easy... Or Have They

Airbnb: Short-Term Rentals Have Never Been So Easy… Or Have They?

On April 15, 2016, Quebec became the first Canadian province to regulate home-sharing services. Now, under the provincial law, homeowners who frequently rent out their property must acquire the same certification as hotel and bed-and-breakfast operators. In other words, if you’re interested in vacationing in a Quebec home, the owners are obliged to charge lodging taxes up to 3.5%. Why? All because of a company called Airbnb.

Founded in San Francisco in 2008 and currently valued at over $25 billion, Airbnb is a fairly new company for its success. The online platform prides itself on being a trusted community marketplace for people to list, discover and book unique accommodations around the world. The statistics easily prove this statement correct, with over 60 million guests and 1.5 million listings in 34,000 cities across 191 countries. Airbnb allows anyone to sign up and rent living room couches, small apartments, beautiful houses, penthouses and even castles for their dream vacation, all at a wide range of prices to accommodate every budget.

Why Airbnb?

Airbnb isn’t just for travellers who need a place to crash in a foreign city. Without renters, there would never be short-term leasers. Anyone who owns residential property can register to be an Airbnb host and rent out their space under three categories: the entire home, private rooms or shared rooms. Of course, homeowners don’t open their doors to the public just to flaunt what they have. Hosts pick the price of their listing depending on a few suggested factors such as size, location, amenities, and when a guest books their home Airbnb only takes a small 3% service fee. The remaining money is pocketed by the homeowner making Airbnb a respectable and effortless money incentive.

Canada is one of Airbnb’s largest markets across the globe, with Montreal ranking in its Top 10 cities and statistics showing over 650,000 guests having stayed at Airbnb rentals during their travels in the country over the past year. In May 2016, there were roughly 9,500 Airbnb listings in Toronto with just over 60% being for entire houses. Similarly, over 4,200 hosts in Vancouver provided 6,400 units for rent through Airbnb, with 70% of those listings for entire homes.

A study shows the average Canadian Airbnb host makes about $6,500 annually through occasionally renting out space. Although this sounds like a sizeable amount of disposable income, further studies show that renters aren’t just pocketing their earnings. Aaron Zifkin, Airbnb’s country manager for Canada, stated that over half of people listing their properties do so to pay off their mortgage or to put towards monthly expenses. In large cities like Vancouver and Toronto where housing bubbles are inflating prices, Airbnb is a great opportunity to earn supplementary income to put towards the hosts’ basic costs of living. For example, an Ottawa townhouse owner who pays a $1,000 monthly mortgage has been earning $8,000 per year renting out a spare room on Airbnb. This helps them cover two-thirds of their year’s total mortgage.

Airbnb versus The Nation

However, as Airbnb’s popularity grows so do the negative side effects. To begin, Airbnb’s country-wide growth of 125% means an increased number of hosts in each city competing for guests. Furthermore, this new type of market has caused a slew of regulatory problems with city bylaws, landlords and even the national economy’s well being.

On a macroeconomic scale, Airbnb is a suggested factor affecting the Canadian housing bubble. Vancouver, and on a smaller scale Toronto, has seen extreme price increases for residential units while supply has stayed low. However, a recent analysis revealed that there are over 5,000 short-term accommodations listed in the Metro Vancouver region. So, while municipal councillors grapple to generate more rental housing for locals to live and work in downtown Vancouver, there are still thousands of places for tourists to stay on their visit to the west coast city.

The biggest threat is homeowners who frequently list their “entire home” for short-term rental over a long period of time. Doing so implies that hosts aren’t residing in their property and using it as an investment to generate income. Therefore, British Columbia has teamed up with the City of Vancouver to impose a vacant home tax in hopes of freeing up empty residences and increasing housing supply for long-term rentals or purchases.

Similarly, a nation-wide coalition craftily named “Fairbnb” has called on Toronto to regulate short-term rentals in the city and across the country. Chairwomen Lis Pimentel has a very open-minded approach to their mission and has no intention on outlawing Airbnb. Rather, she is opening up a discussion about affordable residential housing and how it is shrinking due to commercial and tourism intentions. Fairbnb is kindly asking “Canadian cities [to] modernize their laws and enforcement so that there are fair, consistent and respectful market rules for short-term rentals.”

Airbnb versus The Hosts

With all this in mind, Quebec has been the first province to make a move in the “fair” direction. Now, short-term renters will be registered and certified like all lodging establishments. This will help distinguish who is using their residential unit for commercial use and tax them accordingly. There will also be a penalty for those who dodge these taxes. A Montreal man has recently been charged $60,000 by Revenue Quebec after realizing he wasn’t claiming income tax from his Airbnb profits. Officials got wind of this after the man posted a video online explaining how he was able to pay off $500,000 in debt and then earn an additional $200,000 from short-term rentals.

In Quebec, tenants must obtain the landlord’s permission to rent their unit in the short-term. The neighbouring province of Ontario has a Residential Tenancies Act which states that the occupant cannot sublet their residences for a greater amount than what the landlord is charging. Furthermore, many condominiums forbid short-term rentals due to the safety of the building’s residents. Homeowners who violate any of these circumstances to cash in a few extra dollars through Airbnb risk excess taxation, legal fees, or even worse, eviction.

Perhaps most importantly, hosts should consider the overall well being of their home when listing it on Airbnb. Allowing an unknown face into the comfort of your own home, whether you’re there or not, is extremely trusting and can leave your property vulnerable to disrespectful sublets. A prime example of this is the infamous Calgary incident, where renters engaged in what the police described as a “drug-induced orgy”, resulting in roughly $75,000 in damage. Although Airbnb offers a $1 million insurance policy there are still loopholes in the fine print that do not cover all areas of potential damage.

Potential Hosts Be Wary

You may need a little extra help paying off expenses or perhaps be going on vacation and don’t want your property to sit empty, but there is a lot to consider when becoming an Airbnb host. Therefore, if you’re looking to list your home or condo do your research beforehand.

To begin, familiarize yourself with provincial and municipal laws. Is your lot zoned accordingly? Do you need a permit or license to legally allow short-term guests into your house? Are you subject to rental income taxes? Local policies vary quite a lot from city to city so make sure you are fully informed on your specific region so you can avoid penalties or hefty fines.

Once you fully understand the provincial and municipal legal aspects of being a host, acquaint yourself with your property-specific situation. If you live in a condominium, does renting with Airbnb adhere to your building’s board rules? If you’re a tenant, does your landlord endorse your listing and pricing of the unit? Of course, don’t forget to look into the Airbnb insurance policy as well as your own house insurance to see what is covered and what possible scenarios and assets are subject to risk.

Lastly, consider the extraneous variable that is out of your reach – the actual guest’s behaviour. You could be unlucky and host a bad guest who may not be respectful of noise, cleanliness, damage or even criminal activity. As a host, you are liable for what goes on inside your property, so ask yourself: is the risk worth the reward?

All this being said, Airbnb is an extremely well-regarded company that has connected renters with owners for good value through an extremely convenient platform. After operating for over eight years, the website has worked out a lot of its kinks to make each rental a pleasant experience on both ends of the spectrum. Listing a property is easy, but knowing your ownership rights, property-specific regulations and the locals’ laws are a lot less straightforward. Consider all aspects before signing up and if the risk is worth the reward then you might have a few extra dollars in your bank account!

Post by: Jeffrey Mziray

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