Thinking of Airbnbing your condo? Maybe you’re already making extra money hosting guests for a few weekends.
Landlord beware! Here are a few risks to consider before choosing this business model:
– More and more condo associations are forbidding Airbnb. Even if some continue to tolerate short term rentals today, there is no guarantee that at the next association meeting co-owners won’t decide to ban the practice.
– Insurance presents a serious risk. Even though Airbnb offers its landlords some type of insurance, you can be sure your home insurer won’t like short term rentals. Most insurance companies require that landlords sign long-term leases with tenants (usually 1 year+). Your insurer may not know what kind of lease you have running at this very moment, but you can be sure that if something major goes wrong they’ll go digging. If you’ve been signing shortterm leases and your policy forbids it, they may not cover damages. The same goes for your condo association. Co-properties have collective insurance. If something goes wrong with one of your rentals and the condo association gets involved, the building’s collective insurance may refuse to pay. You’d don’t even want to imagine the lawsuit here!
– Most governements have laws governing rentals and the hotel industry. In Quebec, for example, the rental bord requires a lease to be minimum 28 days to qualify as a falling under conventional rental laws. Below this number of days, you are considered a bed and breakfast. This requires special permits, taxes, and inspections. Bed-and-breakfasts also have to have special insurance and fire-code conformity. Although the risk here is relatively low; from what I know most areas don’t police this actively, there is nonetheless some risk.
– Finally, consider this: insurance companies don’t want short term renters because they consider the risk very high. This should be a loud warning message. Insurers calculate risk based on statistics of when things go wrong. As a property manager, my experience has confirmed these statistics. Bedbugs, neighbourhood disputes, broken furniture, holes in the walls, loud parties and angry neighbors are just a few examples of the more minor irritants I’ve observed often.
In projecting to the future, it may be wise to consider converting your Airbnb to a long term rental. In the short term, this may hurt your pockets a bit. No one wants to hear this. But it’s better than building your business model on something shaky and borderline illegal.
By Terrie Schauer, Investment Property Specialist