Short-term rentals have profoundly changed Canada’s real estate landscape in recent years. Love them or hate them, there’s no option to put the AirBnB genie back in the bottle. But the past year in particular has put new pressures on STA owners, as we’ll explore further. Some are backing out, removing their listings from the marketplace. But no doubt there is still an intrepid bunch this is considering whether now is the right time to offer that room, cottage, or apartment up to the short-term rental market to generate extra income.
Current Market Trends in STA Rentals
The Canadian STA market has witnessed significant growth, driven by factors such as increased tourism and the rising popularity of ‘staycations’. According to a report by Statistics Canada, private short-term rental listings doubled its market share in the accommodation services subsector from 2017 to 2021. According to Desjardins, Canada had over 235,000 listings on popular short-term rental (STR) platforms in 2023. That’s equivalent to roughly 1.4% of Canada’s housing stock or 4.9% of its long-term rentals.
This surge can be attributed to various factors:
- Tourism Growth: Canada’s rich cultural heritage and natural beauty continue to attract tourists, fueling demand for STAs.
- Economic Contributions: The STA market has become a significant contributor to the local economies, especially in tourist-heavy regions. This has proven to be a double-edged sword however, as many attribute the increasing unaffordability of homes to STA activity. To reference one extreme example, Statistics Canada noted that Whistler has a striking 62.3% share of its accommodation services market dominated by STA rentals.
- Pandemic Impact: The COVID-19 pandemic brought unique challenges and opportunities, with many travelers opting for private rentals over traditional hotels for safety and privacy concerns.
A growth curve that looks like a hockey stick isn’t sustainable over the long run, which raises the question: how long will the boom continue? For STA owners who got in early, many enjoyed some years of high occupancy and a generous side-income supplement. Over time, others jumped in with both feet, building entire businesses around a network of STA properties. There are increasing hints that that joy-ride may be over…
Challenges Facing STA Owners
While the STA market offers lucrative opportunities, it also presents several challenges that prospective and current owners should consider:
Regulatory Hurdles
Many Canadian cities and municipalities have implemented regulations impacting STA operations. For example, Toronto’s strict STA regulations require owners to live on the property they rent out. In some communities, regulations such as these can make your STA dream a complete non-starter.
Increasing Taxation and Registration Burdens
Last year AirBnB began automatically collecting HST on behalf of Canadian hosts on its platform. And across the country many municipalities have instituted new bylaws that make it mandatory to register STAs (often with a required inspection and registration fees). At the same time, many are introducing new accommodation taxes for STA owners. The Canadian Government jumped in recently too, banning tax deductions such as interest expenses in municipalities where STAs are prohibited. It’s a new level of squeeze.
Market Saturation and Over-Supply
With the rise in STAs, certain areas are experiencing oversupply, leading to increased competition and potential price wars. Software platforms for managing STA listings have become more advanced, driving more aggressive auto-bidding to adjust price levels. It can be hard for the single property owner to set their pricing appropriately to maximize demand without dragging down their occupancy rate.
Impact of Rising Interest Rates
The Bank of Canada’s interest rate decisions can significantly impact mortgage costs and profitability for STA owners. If the mortgage on that cottage you’ve been renting now costs you an extra $500 a month in interest to own, that can put a real dent in your rental profit margins.
Still willing to consider starting up a new STA rental? Read on – it gets easier to digest.
Benefits of Owning an STA
Source: LARi Cartoon Archives
The allure of owning a short-term accommodation rental in Canada is not without merit. There are several compelling reasons why individuals are drawn to this investment:
- Income Potential: STA rentals often yield higher returns than traditional long-term rentals, especially in high-demand tourist locations.
- Flexibility: Owners have the flexibility to use the property for personal use or adjust rental availability according to market demands. For example, if you have a cottage you only use on weekends, you might find that renters are willing to pay an attractive price to rent on the summer weekdays when you’re not there.
- Property Value Appreciation: Real estate in Canada has historically appreciated over time, though some argue we’re poised on the brink of bubble. For some property owners, STA rentals enabled them to acquire and afford more property than traditional rentals would have, resulting in a portfolio of real estate with growing value. Of course, the more leveraged those properties are, the greater the exposure to interest rate risk.
- Diversification of Income: STAs provide an alternative income stream, which can be particularly valuable in uncertain economic times.
- Potential Tax Deductions: You wouldn’t normally think to count toilet paper as a business expense, but supplies and costs that are in the genuine use of servicing your STA guests can be deductible.
Tips and Guidance for Potential STA Owners
For those considering the STA market, here are some strategies to maximize success:
Choose platforms like Airbnb and VRBO to reach a wide audience – they will likely to deliver most of your bookings. But there are also valuable directories or classified listings that can reach a particular niche (with reduced fees for you). Some owners set up a dedicated website for their property with online booking and e-commerce.
High-quality photos and detailed descriptions can set your listing apart. You want good photographs, but not doctored or retouched ones – that may lead to a guest review that points out the reality of your place as seen in the plain light of day. Describe the attractive features, but don’t over-sell it as that can come back to you in the form of disappointed guests.
Know your location and the pattern of its peak seasons. A summer rental will generally spike through July and August, with some “shoulder season” activity in June and September, and a smattering of rentals in May and October. But it will vary – if you’re lucky enough to live in an area with a ski resort, you might be busy year-round. Services like AirDNA can help you assess the opportunity in your market.
Optimizing Operations:
Stay on top of your calendar! Especially if you are listed on multiple platforms like AirBnB and VRBO. Bookings can come at you fast in peak season and it’s important to block off your calendar in BOTH platforms when you’ve received a booking. If you intend to use the property for your own purposes at times, get a full year’s activity booked before the new year begins so you can avoid disappointing someone due to a conflict.
Regular maintenance and cleanliness are key to positive reviews. Cleanliness is one of the top drivers of reviews. Most successful STA owners commit to at least two hours of cleaning after a guest leaves from a multi-night stay. If you aren’t sure you have the gusto for that, hire a cleaner and be sure to inspect their work on occasion.
Be a good host. Many guests will want recommendations for restaurants and local activities. Providing some “extra” amenities for their stay can go a long way to getting excellent reviews.
Financial Management:
-
- Keep track of expenses and revenues for tax purposes.
- Consider hiring a property manager if managing the STA becomes too time-consuming.
Navigating Legalities:
-
- Stay informed about local regulations and zoning laws. These are changing rapidly in many markets. With the rising popularity of tiny homes in Canada, some STA owners have found them to be a lucrative way to earn more from an existing property. But above and beyond the regulations around STAs, tiny homes face a different set of municipal regulations – and in some cases are prohibited. Know your local bylaws before you build!
- Ensure adequate insurance coverage for your property and business activities.
FAQs for STA Owners
- How do I start an STA business in Canada?
- Research the market, understand local regulations, secure financing, and prepare your property for guests.
- What are the key legal considerations for STA owners?
- Compliance with local bylaws, proper insurance, and adherence to taxation laws are critical.
- How can I manage peak and off-peak seasons?
- Adjust pricing, offer special promotions, and enhance your listing to attract guests year-round.
- Tips for maintaining high occupancy rates?
- Regularly update your listing, respond promptly to inquiries, and gather feedback for improvements.
- How do I handle difficult guests and disputes?
- Establish clear house rules, maintain open communication, and use the conflict resolution tools provided by rental platforms.
- What is the future outlook for the STA market in Canada?
- While the market faces challenges, the trend towards personalized travel experiences suggests a steady demand for STAs.
