Take a quick poll of whatever room or TTC vehicle you happen to be in, and I’ll bet the results will be split 50/50.
Some people think that AirBnB is the greatest thing since sliced bread.
Others think it’s a major problem in downtown Toronto condominiums, and if rumours have it correct – it’s a problem in virtually every major metropolitan area in the world.
Let’s look at a few case studies, a bit of reasoning, and then you decide…
My wife and I went to New Orleans in November of 2014, and we were impressed.
In fact, we basically fell in love with the city.
We loved it so much that we figured not only would we want to go back, but that we might want to get our own little piece of the city.
If you’ve read my blog for the last few years, you know that I don’t believe in “vacation properties.”
Unless you’re a multi-millionaire, who can spend $695 on a Ralph Lauren polo shirt on Worth Avenue in West Palm Beach, Florida, then a the finances of a vacation property just don’t make sense.
I’ll save the math for another time, but let’s just say that if you wanted to own a condo in Florida, Arizona, Banff, New York, or anywhere else in the world, you could probably stay at a 5-star hotel for two weeks, every year, for the next thirty years before that condo purchase makes any financial sense.
Having said that, I’m in real estate, and it’s an occupational hazard that I like to look around whenever I travel.
Case in point: this unreal condo I found in New Orleans, just outside the French Quarter (my wife and I are not into the party scene and would not want to live IN the French Quarter – how do you get any sleep?), that was about 700 square feet, in an old converted warehouse, and was only about $260,000.
I saw, first-hand, how hard it is to find a hotel room in New Orleans, so I figured there might be a shortage, and thus an opportunity. I went to www.airbnb.com, and started looking at properties. I found one property – a condo, not too far from the one I was looking at, that was booked about 25 nights per month for the next three months, at $175/night.
So I started to crunch some numbers….
Let’s be conservative, and say that you ended up with $150 per night, for “only” 250 nights per year. And I might add that I met an awesome guy at the Allen Edmond’s store, who invited my wife and I to tailgate at the New Orleans Saints game with him and his entire extended family, who mentioned he would have no problem helping to run the property for me…
That’s $37,500 in rental income.
A typical 700 square foot condo would rent for about $1,500 per month, or $18,000 per year.
So imagine getting DOUBLE the rent you could otherwise achieve, and be able to stay there for one vacation per year (I’m not going to suggest that I’d go more than once per year, since that’s where people go wrong with investment properties, in my opinion…), and suddenly this seems like an investment that pays for itself.
In fact, with a 30% down payment, this condo would carry for a paltry $800 per month, or $9,600 per year in mortgage payments, of which HALF is principal repayment.
So this condo doesn’t just pay itself off – it pays YOU, and you get to stay there for free.
Sound too good to be true?
It is.
Here’s what a local Realtor with Sotheby’s emailed me:
“AirBnB is not sanctioned by the City of New Orleans, as city code states that a one month term is the shortest term someone can lease their property (2 month minimum in French Quarter). The reason being is that New Orleans is built and runs on tourism dollars, and any term shorter than one month will detract from tax paying hotels/guest houses/bed & breakfasts.”
Interesting!
That makes sense, right?
It seems to reason that the City of New Orleans would want to protect their Golden Goose, and thus they’d outlaw anything that could cut into their incredible financial bounty. It’s not just the city, of course – it’s the businesses as well.
Now a contrarian viewpoint would be, “Why does the City get to dictate the rules? What happened to the free market? Why interfere with an active market of buyers and sellers, and regulate the rental industry?”
I see merit to both arguments.
I’m not an expert on politics, urban planning, civil economics, et al.
So let’s turn the conversation towards condominiums, and the problem we’re having in Toronto (and many other cities) with AirBnB.
First, try this: Google “AirBnB” and see what comes up. Just make sure nobody is standing around your computer.
I searched Google Images and found that more than half the images were making fun of the logo, many people think resembles genitalia.
I also found a lot of Internet memes about AirBnB being a place, medium, or theme regarding having carnal relations in another person’s home…
Now if you, a condominium owner, are okay with two German tourists having group sex in your condo with a bunch of people they just met at a youth hostel, then let capitalism and the free market reign supreme!
But many condominium boards don’t believe a condo should be that free, and thus condominium declarations are being updated to reflect this.
If you think that a condominium shouldn’t have the “power” to outlaw daily (ie. nightly) rentals, think again.
Don’t forget that when you buy a condominium, you’re buying into a corporation, and that corporation has rules and regulations. That corporation has bylaws, and iron-clad procedures that must be followed.
This is why when you purchase a condominium, you do so conditionally, so that your lawyer can review the entire Status Certificate, which contains the “Declaration,” which is like the “United States Constitution” for condominiums. It’s the starting point for a newly created country, and that country is where you’ll be living for as long as you decide to be a condo owner.
And just as the Constitution has “Amendments,” ie. that one that lets Americans run around and shoot each other with AK-47’s that they bought at Target with no background check, your condominium board of directors can also seek to amend, update, alter, or change the condominium’s declaration, and if they don’t already have a rule or bylaw that outlaws nightly rentals like those through “AirBnB,” you can be assured that one is on the way.
The Globe & Mail’s Carolyn Ireland wrote about this very subject in last Friday’s paper, where she suggested that the coming Pan-Am Games might help spur in increase in nightly or weekly rentals.
See the article HERE.
And the “problem” that AirBnB, a now $20 Billion company, is causing, is not limited to just condominiums in Toronto either.
Remember THIS article in the Toronto Star from a few weeks ago?
We’re not talking about tourists anymore, but rather, what if somebody wanted to rent somebody else’s house for a gong-show, rager, rave of a party, and simply pick up and leave at 3am?
As has always been the adage with the wonderful world of the Internet, “If you want to find it, just look for it, and you eventually will.”
So if it wasn’t clear already how my vote goes on this subject, then let me say that I think “a community built on trust,” as AirBnB’s motto goes, is exceptionally naive in 2015.
This is a cash-cow for the creators of AirBnb, but it’s a practical nightmare for anybody who is not the lessor or the lessee of the property, and having said that, I’m willing to bet there’s been a LOT of problems for those parties involved.
As I said before, I’m not an expert on politics. I don’t know who is responsible to oversee something like this.
Is it the city?
Is it the province?
Is it a federal issue?
Or is it up to condominium boards, home-owners associations, and angry flash-mobs?
Whether you’re “for” or “against” AirBnb, and whether that’s in a condominium or house, I think this is already a problem, and it’s only going to grow exponentially as time goes on…
AndrewB
at 8:10 am
I love the idea of Airbnb. It sets a fire under the asses of the hotel industry to lower their prices. There’s a lot of correlation here with Uber, but that’s a whole other conversation. Anyways, I’ve used Airbnb and love it, but I probably wouldn’t rent my condo out nightly using Airbnb. I know I will be a good house guest, but I’m not so sure others would as well.
Also, looking at the business prospects of this, it only makes sense if you’re living in a tourist destination in demand to keep your calendar full of bookings.
Joe Q.
at 9:20 am
The idea of “a community built on trust” might still apply to those actually involved in the business transaction. For those on the outside (i.e. the neighbours), not so much.
Chroscklh
at 10:40 am
I first hate this thing. I book wrong site – AtlR&B.com, force stay in Atlanta nightclub for 8 night or lose money. Mama visit from Europe, she say “what kind hotel play music this loud?!” she have small stroke -but bright side, won twerk contest by accident. Okay but real AirBnB I think is good. I enjoy. But I responsible customer – leave bear at home, take few fire arm, always say ‘hi’ or “sorry bout case vodka left in hall” to neighbor -but I no want AirBnB neighbor in condo, no trust. Maybe occassional – like couple time month, but if EVERY weekend weirdo like me stay there, I complain to condo board. I no share in rent, correct? If continue, I convince tourist is ghost live there like Scooby Do plot and scare away.
Mike
at 11:15 am
Anyone know if aifbnb would be covered under the Residential Tenancy Act or the Innkeepers Act?
While airbnb is obviously the biggest and most commercial, renting out properties on a short-term basis has gone on long before the internet, this is not a new problem.
jeff316
at 12:48 pm
I do not believe it is covered under any of them.
I think there are solutions to the AirBnB issues – it is a lot easier to solve than Uber, personally.
Is the problem loss of tax revenue associated with hotel stays and hospitality services? That’s easy to deal with – have AirBnB collect the taxes and remit them to the government.
Is the problem the use of condo resources by itinerant AirBnB customers? Maybe the condo board could levy a higher fee for people who want to use their condos as short-term rentals to make up for the demand in concierge services, use of the facilities, clean up costs, etc.
Is the problem depreciating value of your investment because of how other condo owners treat their place? Well, that’s a risk regardless – that’s just life.
jeff316
at 12:40 pm
$260 000 in New Orleans ain’t cheap! But at that price I can imagine that would get you a fantastic condo down there.
penguin
at 12:48 pm
My condo has it baked into the declaration that we can’t pass a by-law banning airbnb. They even hand out / collect keys at the front desk and it drives me insane.
Mooj
at 2:34 pm
Odd, most condos have very specific rules against short-term rentals. Interesting that your building seems to go the other way.
RPG
at 2:52 pm
Which building?
penguin
at 11:16 am
I own, so I’d rather not say.
Tridel though.
IanC
at 5:31 pm
From the 1998 Condo Act:
Section 58(1)
The board can make, amend or repeal rules if it’s to promote safety or prevent unreasonable interference with the use and enjoyment of the common elements.
Under Section 46 – No vote required. As long as 85%+ of owners fail to requisition a meeting, it can pass. In other words, you need 15% minimum to requisition a meeting.
So in spite of ridiculous by bylaws that seem impossible to change, condo boards can use people’s disinterest and inaction to change rules if it’s in the interest of safety.
That’s how I read it anyway. I have no legal background.
CondoMadness
at 3:44 pm
Some developers have their own hotel-suite companies that rent short-term in their newer buildings. The developer, property management, some contractors and a rental company are all in one. Everyone in those buildings can rent their units on a short-term basis.
Before buying, read the declaration very carefully.
Andrea Sammut
at 3:49 pm
Agreed CondoMadness! Hotel-condos have many issues with mortgage financing.
BellaB
at 5:09 pm
Which condo is this?
jeff316
at 1:23 pm
To quote Modern Seinfeld (@SeinfeldToday) Jul 3
Kramer rents out his apartment every night on Airbnb & lives in the hallway. K:“I’m making cash hand over fist, Jerry!” J:“You’re homeless!”
Andrea Sammut
at 3:37 pm
Be very cautious of listing your property for short term rentals. Recently had a lender pull a mortgage commitment as the property was listed on Air BnB and was deemed a bed and breakfast by the lender. It’s just not worth the risk for so many reasons…insurance coverage mortgage financing, risk of damage, tax implications.
mortgageJAKE
at 9:33 am
Wow. Interesting. Which lender?
Stupid of the client to list the property on airbnb though, or kijiji, or mls, or craigslist etc., before it closes.
(Unless it was the seller that had it up)
Andrea Sammut
at 9:54 am
It was a refi mortgageJAKE.
natrx
at 8:49 pm
Had to spend 6 days in Vancouver back in 2010. Hotels were at least $120/night.
I stayed 6 nights at a nice condo in Coal Harbour for about $70/night including parking. Much better.
The condo area was pretty quiet though and you could tell many were vacant.
Steve
at 10:24 pm
mmm
Steve
at 10:26 pm
Airbnb is a good idea in some situations, but it’s still risky.
mortgageJAKE
at 9:13 am
So David let me ask you something. If airbnb is a “problem”, and no one knows how to identify which level of politics will address it, and it is worth at least $20B as of now, and it’s growing like a weed, then how does one expect this problem to go away?
Imagine a forest fire raging on. Then imagine you have a little lake beside you from which you can grab a little tiny bucket and put away maybe a few branches at a time.
That’s how I see the rapid change that companies like airbnb and uber cause for cities, citizens and governments. And the problem is, with their immense valuations, that problem is not going to go away.
(I’m not asking you for a solution because if you had one you’d be worth $200B, I’m just saying that fighting the problem isn’t going to be the cure in my opinion)
Kyle
at 10:12 am
I own a cottage that I rent out when my family isn’t using it. We market to families with young children, we screen all guests and we get a signed rental agreement with a security deposit. We haven’t had any problem renters. So I think the Airbnb horror stories tend to be from people, who are too lazy or just don’t care about the property, like renters who try to sublet their apartment short term for a profit.
As far as government regulation, It doesn’t make sense to me to restrict the activity (i.e protect the hotels), I think it’s fairer to figure out a way to tax those renting out their properties for short term stays. In Blue Mountain owners have to apply for a license, maintain certain standards (relating to fire codes, noise, having adequate insurance, condition, appearance, etc) and pay an annual fee to rent out their properties for stays less than 30 days. To me this seems like a pretty sensible approach. I also think condo boards should allow residents to vote on whether to allow short term rentals, since no one owner actually owns the property or common areas.
http://www.thebluemountains.ca/public_docs/documents/STA%20Licensing%20Application%20Guide%20FINAL%20(8%2028%2014).pdf
RobFjord
at 2:26 pm
im no lawyer, but i bet its not too hard to get around the condos regulations against Airbnb, first of all, they have to prove it was a short term rental…how do they do that?- do they get a copy of your contract!? an ad on airbnb is not proof, nor is the constant in and out traffic of strangers from your condo unit proof, or even evidence.
Jean
at 12:01 am
Putting your place up for rent on AirBnB is just plain rude when a condo has restrictions against short term rentals.
Rule-abiding tenants pay a premium to live in a place without good-only-knows-who shuffling in and out of their building. And it is not their responsibility to help some jackass make a few extra dollars. If your budget doesn’t balance without the AirBnB income, you can’t afford your condo.
DonRon
at 6:41 pm
As the proprietor of a classy, high end, companionship service, AirBnB has single handedly saved my business. No more worrying about hotel security or curious concierges always harassing guests who just want to talk over some red wine and cheese.
lui
at 1:56 pm
There has to be some sort complications with insurance if a claim has to be submitted,same as Uber where if you use your car for commercial purposes insurance company will not cover you if you didn’t register the car for that purpose.
Mimi
at 6:39 pm
Honestly, I’ve been doing it for a while and I love it. And the whole, you don’t know who’s doing what in your bed, why are we so easy to spend up to $300 in a metropolitan hotel in beds that thousands upon thousands of people have slept in. It’s the same thing! Change the sheets and get on with your day haha
Also, the horror stories? You can put things in place to prevent them from happening. I for instance have a very high security deposit. People have asked me if I’d waive it, I say no, they disappear, I don’t rent to them, crisis averted. Also, I get them to send me copies ID for every adult staying in the unit. Someone thought that was weird once, so I said ok, you can’t stay here then!
It’s not as bad as you’d think. It’s important to clearly state what can and can’t be done and you’re good to go. I even claim it on my income tax so tax man can’t come after me.
dave @ www.AffordEverything.com
at 11:39 am
I have been a host for airbnb for over a year now and I love it, there are occasional hiccups, but I’m a problem solver. I find that by renting my properties on airbnb, Im usually able to double what I would make as a traditional landlord, this is definitely not passive income, but a lot of this can be automated to get very close. If you have a moment check out my blog post on http://affordeverything.com/the-airbnb-investment-experience/
Stayhomesearch
at 12:54 am
Airbnb often gets lumped in with short term renting (it’s almost synonymous with that term it seems) and the craziness that you hear about in the news; but for many properties we use it exclusively for long term renting at http://www.stayhomesearch.com
GuestBnb
at 6:20 pm
This blog post on face value is negative towards Airbnb and the short-term rental industry in general. Corporate housing, temporary housing, or vaction homes have been around for decades. This isn’t something new. I agree with the poster’s concern but instead of demonizing the start-up for making the industry more easily accessible for anyone, we began a mission to change and manage properties safely. Guest screening, is important to the safety and control for any host who chooses to do Airbnb, and that’s something we don’t take lightly here at http://www.guestbnb.ca
Cristina
at 3:49 pm
There is another aspect to this trend: according to what I am discovering, if guests overstay their reservation without paying for their overstay, AirBnB and other similar companies DO NOT support the host against local legislation, that at least is some jurisdictions prevents the host from locking out the guest. Neat he? They are ready to catch a percentage of your earnings, but not to get you out of trouble.