Is it Profitable to Rent Your Home on AirBnb in Toronto

| Investing

Although we hate to be wishy washy when answering critical questions about real estate investments, the truth of the matter is, when it comes to determining whether an Airbnb is profitable, the answer is it can be.

Here we look at the ins and outs of short-term rentals in the Toronto market with insights on when it can be profitable and the big catch that makes it a bit of a pain in the you know what!

What is Airbnb?

Airbnb is what is known as a short-term rental company or broker. The platform allows users to search and then book rental reservations online and for hosts to post their rentals and receive payment from their guests. Other short-term rental companies include:

  • Vrbo
  • Homestay
  • Tripadvisor
  • Booking.com
  • One fine stay
  • Expedia
  • HomeToGo
  • Vacasa
  • Atraveo

What is a short-term rental in Toronto?

According to the City of Toronto’s website, a short-term rental is “all or part of a dwelling unit rented out for less than 28 consecutive days in exchange for payment.” This includes bed and breakfasts but excludes hotels and motels. You must also be a registered short-term rental operator (RSTRO) to rent to tenants.

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What’s the “catch” for Toronto short-term rental hosts?

Yep, there’s a big catch for Toronto RSTROs and it’s a doozy: The Tax Court of Canada now charges a hefty 13% HST to property owners selling a home that’s consistently rented to short-term tenants. This could add up to tens or even hundreds of thousands of dollars for a prime location. The view is that registering as a short-term rental switches your property from residential to commercial use.

Let’s say your home is worth $1.2 million. That would cost you $156,000 in HST when you sell. Now, stats show a typical short-term rental in

Toronto earns an annual revenue of $38K. So, you’d have to operate for just over 4-years to start seeing a profit to negate the taxes you’d pay when you sell. So, that’s something to consider. Since the tax is so new, it’s important to discuss the implications of the tax with your lawyer to understand if this tax would apply to you!

A few more issues:

  • The property you rent has to be your PRINCIPAL residence, meaning that you can only rent rooms in the home where you live the majority of the year. Bummer.
  • You have to collect 6% Municipal Accommodation Tax (MAT) on rental revenues which then must be remitted within 30 days of the end of each quarter even if your rental sat empty during that time.

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What you can and can’t do as a Toronto short-term rental host

RESTROs who own their property are limited by the following rules:

  • You can’t rent to a tenant for more than 28 consecutive days under any circumstances
  • You can rent up to three of the bedrooms in your home simultaneously for an unlimited number of nights over the course of the year
  • You can rent your entire home as a short-term rental for up to 180-days in total over the course of a year
  • You can’t rent a secondary suite in your home with a kitchen, bathroom and separate entrance unless you live in it, such as a basement apartment, single floor flat, laneway suites, garden suites, carriage houses, lofts, etc.

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How to buy a home for a profitable Airbnb in Toronto

As with any real estate investment, it’s all about location. Prime locations can charge a premium for being close to attractions, dining and entertainment and enjoy higher occupancy rates. For example, you’re going to get limited interest in a random condo way out in Scarborough or North York then you would in say a charming room in a historic Victorian in the Annex, a condo overlooking the lake in the heart of downtown TO or a location in high scale areas like Yorkville. That said, a beautiful 4-bedroom lakeside home in South Etobicoke can charge $350 per day which means you could earn up to $68,000 a year renting in unexpected areas based on the180-day rule.

Some tips to increase Airbnb occupancy rates and profitability include:

Maintain a high rating to increase occupancy rates

Short-term rental properties rely heavily on high ratings from satisfied guests. The more appealing, convenient, cleaner, safer, and welcoming the accommodation, the higher ratings you’ll get, and the higher occupancy you’ll enjoy.

Leverage dynamic pricing

Paying attention to what’s happening in the city and adjusting your rent to remain competitive can help maximize revenue. For example, something like a Taylor Swift concert or major sporting event can increase demand, so you can increase your rent when major events or performances happening in the area. You have to be careful to price things right so you can increase profits, but not turn off potential guests.

Avoiding fines and complaints

Let’s face it. Neighbours hate short-term rentals in their part of town. If you generate issues with the neighbours, you can have city authorities breathing down your neck and face fines that can range from $300 to $1000 per offence. So be very selective in who you rent to and ensure you follow the rules.

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Who would make a good RSTRO?

There are a few types of investors who might make good RSTROs, such as:

  • Travelers: If you’re away often throughout the year, you can take advantage of that 180-day rule without having to live with strangers.
  • Snowbirds: As with above, being away in the winter offers an opportunity to earn some income while you’re off to sunnier climes.
  • Social butterflies: If you love the idea of hosting people from around the world, this could be an opportunity to have the perfect side gig.
  • People in debt or carrying a hefty mortgage: If you’re willing to share your home, this could be a good solution to help pay off debt or cover hefty mortgage payments.

The Bottom Line

You really have to weigh how much you can earn versus the potential taxes you can face when you sell your home. By making the switch from residential to commercial you could find yourself staring down the barrel of a very pricey tax bill, which completely negates any profits you made as a RSTRO host!

Looking for smart advice on finding the right real estate investment? The Christine Cowern Team can help. Give us a call at 416.291.7372 or email us at hello@christinecowern.com. We’d love to work with you!