4 Risks Of Short Term Rentals

Airbnb short term rental have become popular in the city of Toronto. Instead of renting a one bedroom condo for $1700, one can generate $3000 per month of revenue making the condo a cash cow! But there are 4 risks associated with short term, Airbnb, rentals for condos and houses you need to be aware of before going down that path.

1. HST

HST is collectable on short term rentals. If you charge $100 per night, you either add 13% to the price and remit or take 13% off the $100 and remit. Bottom line short term rentals are not treated as long term rental income which is declared via T776 Statement of Real Estate Rentals. CRA has modified T2125 Statement of Business or Professional Activities to include a new section: Internet Business Activities.

2. Insurance

Turning your condo or basement apartment into a short term rental has implications on your insurance policy. Since the space is no longer considered residential, it would fall into the commercial insurance space. You could lose your coverage if the insurance company realizes you are running a short term rental under a residential insurance policy.

3. Mortgage Qualification

Most lenders do not use short term rental income for mortgage qualification purposes. Lenders finance investment properties as residential properties if there is a one year lease agreement. Short term rentals are considered to be commercial operations and fall into the commercial lending space.

The above 3 points apply to condos and low rise (detached, semi-detached and basement apartment rentals). The following is specific to condos only.

4. Condo Board Rules

Most condo boards restrict renting units to a minimum of 3, 6 or 12 months. Very few allow daily rentals which effectively turns the condo building into a hotel alternative. The condo board can levy hefty fines and take legal action if the owner is caught in violation of the rules. 

Yes the cash flow is lucrative but the risks outweigh the extra cash. If you view your investment property as a business, playing by the rules protects your business from being shut down and you can sleep better at night!

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