Let’s talk Airbnb!
So Airbnb and short term rentals have been a hot topic for several months in the City of Toronto. Just hop onto the app, and you can do a simple map search, and see how many units are on Airbnb in the city. According to a website called “Inside Airbnb” there are a total of 19,255 listings on Airbnb in Toronto (source: http://insideairbnb.com/toronto/). I’ve linked the website below. When I use Airbnb, I’m referring to pretty much all short term rentals and websites/companies that provide that; we just know Airbnb as one of the largest companies to have this kind of presence in the short term rental space in Toronto and internationally.
In December 2017 and January 2018, the City Council approved the use of short term rentals in Toronto (before, they were actually ILLEGAL) and the city also introduced legislation on how these short term rentals would be regulated. Subsequently, the decision was appealed to the Local Planning Appeal Tribunal (LPAT) - and after almost 2 years of court dates and hearings and appeals, the LPAT announced last week that the appeals have been dismissed and that the City regulations will be upheld.
There’s still a little blurriness about how and when these new (but actually very old) guidelines will come into effect, but since there’s so much confusion in what the regulations mean, I’m going to go through the top 8 points right now.
1) Short-term rentals are permitted across the city in all housing types
Pretty easy, right? It basically says that you’ll be allowed to do short term rentals in pretty much any residential unit in the city.
2) People can host short-term rentals in their principal residence only
Principal residence is basically the place where you live on a regular basis. This is especially important for people who own more than 1 home. Let’s say you have a condo in downtown Toronto where you live regularly, and you also have a cottage up north where you spend weekends in the summer. The condo would be your principal residence, and that means that the Airbnb (or short term rental) can only be done in your condo, not in your cottage.
3) People can rent up to three bedrooms or entire residence.
Basically they are preventing people from running their homes like a halfway house or hotel. If you’re renting on a room-by-room basis, then can rent up to 3 bedrooms; OR you have the option to rent out the whole house.
But remember, it still has to be your principal residence.
I thought it might be interesting to share from InsideAirbnb the breakdown of the listing types (source: http://insideairbnb.com/toronto/):
Entire home/entire apartment listings: 64.3%
Private rooms in a shared space: 33.9%
Shared rooms: 1.8%
4) People who live in secondary suites can also participate, as long as the secondary suite is their principal residence.
My investors aren’t really going to like this one… so if you live in a house and you have a basement apartment that is rented out to tenants, the basement suite is the tenants’ primary residence, and the upstairs portion of your home (that you occupy) is your principal residence. So, your tenants are allowed to rent out (sublet) their basement apartment which is THEIR principal residence, but you cannot do that.
Also, in case you do not have any tenants and your basement apartment is empty, technically it is still considered a secondary suite (not part of your primary residence) so you would not be able to rent it out on Airbnb.
I know this part is a little weird and I personally have questions about what exactly constitutes a secondary suite, like for example if there’s no kitchen, it is still counted as a standalone secondary suite? I don’t know - we’ll have to wait for more clarification on this from the government.
5) An entire home can be rented as a short-term rental if owner/tenant is away – to a maximum of 180 nights per year.
They already said they’re allowed to rent out the entire home, but now apparently it can only be 180 nights a year, so basically a maximum of 6 months… and remember this has to be your primary residence.
According to the source InsideAirbnb, the average number of nights the average Toronto listing is booked is 101 nights per year (source: http://insideairbnb.com/toronto/) so this is in line with the regulation of max 180 nights per year.
6) People who rent their homes short term must register with the City and pay $50.
Of course, the City wants to collect fees and hey maybe that’s fine, but we don’t know if this is a per-owner charge, or a per-property charge, or if the registration is for 1 year, or forever, or what.
7) Companies such as Airbnb must pay a one-time licence application fee of $5,000 plus $1 for each night booked through the company.
So basically Airbnb has a 1 time license fee of $5000, and an ongoing $1 per night booked - which is something that I guess will get added on to the listing price of the listings that are on Airbnb… like Airbnb probably doesn’t want to pay that out of pocket.
Average price of a listing in Toronto is $140 per night, so I guess adding a $1 charge on that wouldn’t be too bad?
8) People doing short-term rentals must pay a 4 per cent Municipal Accommodation Tax (MAT) on all rentals that are less than 28 consecutive days. Companies such as Airbnb can enter into voluntary agreements to collect the MAT on behalf of those associated with their company.
I would’ve loved to get the average length of an Airbnb rental in Toronto but I couldn’t find that statistic - still I think it’s safe to assume that the majority of them are way less than 28 days - I’m thinking maybe 1 to 7 nights is the most common for tourists, business travellers, etc.
Now the 4% MAT on an average listing price of $140/night would mean that the guest or the host or the company Airbnb is paying an extra $5.60 per night. If you’re staying for a week, that’s an extra $39.20 on your bill. This won’t be the listing price, it’ll be above and beyond that, because the MAT will go to the City.
Now, either the owner can charge for it in their listing and then pay it to the city all together, or they can have Airbnb collect it like an extra charge (like how they do the service charge, cleaning fee, etc. as separate line items - they can just add MAT), and then Airbnb can give it to the city. We’ll have to wait and see what they decide and how this is going to go.
If you’re a tenant, or you’re an owner of a property in Toronto/GTA, or you’re an investor that’s thinking about buying a property for the purpose of leasing it out, whether short term or long term, there are a ton of things that can affect your decision. So get in touch with me or your trusted real estate professional that can walk you through the pros and cons of anything you’re considering that has to do with property. I can also put you in touch with lawyers, mortgage brokers, and insurance agents that deal with investments specifically and will highlight key considerations when it comes to dealing with investment property of all kinds or renting your own primary residence on Airbnb. Book a complimentary consultation today.