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Short-term rental investing has been an incredibly popular investing niche in recent years. This alternative investment strategy has been particularly attractive in the eyes of investors who are interested in expanding their cash flow. However, recently new rules and regulations have started to sweep across major cities in Canada that may change the future of short-term real estate investing.
Major cities such as Toronto, Ottawa and Vancouver have begun demanding that their short-term rental investors obtain special business licenses in order to continue operating in their municipalities. In turn, some investors have been turning to other cities and towns to set up their investments only to find that these new regulations are continuing to spread.
However, on top of licenses and restrictions, lenders have their own rule for short-term investments that you need to navigate. That is why we want to offer you a free strategy call to help you get paired with the best available lender. All you need to do is click the link below.
So how exactly are these new rules impacting the businesses of short-term rental investors?
Short-Term Rental Licenses Are Becoming More Common – Why is This Happening?
Before you can properly understand how these regulations and licensing requirements that are spreading across Canada are impacting investors, it is important to understand why they are being implemented in the first place.
With the current housing supply shortage, combined with the higher-than-average cost of living facing Canadians, our country’s residents and officials have expressed a concern that as more short-term rentals open up, that the number of available houses for Canadians to buy and rent is further declining.
As a result, municipal governments have decided that buy licensing and limiting the operation of short-term rentals, they should be capable of reducing the impact they have on the long-term rental market. So, if it feels like these restrictions are making it harder to start up or maintain a short-term rental business, you are right. These restrictions are designed to make it harder so that the number of Airbnbs, vacation rentals and other short-term rentals can be kept it check.
Understanding The Types of Short-Term Rental Regulations
Currently, most short-term rental regulations fall into three categories. Sometimes, these restrictions go hand-in-hand as part of the licensing requirements set out on these properties. However, sometimes the regulations are enshrined in local bylaws instead.
These types of regulations are:
Limitations on Neighbourhoods
On of the main types of regulations you may see regarding short-term rental properties is a limitation on the neighbourhoods that investors are allowed to operate short-term rentals in. The neighbourhoods that typically have these restrictions are either major metropolitan areas such as downtown Ottawa or communities with a strong focus on offering long-term housing.
However, most of these restrictions do come with an exception for short-term rentals offered in the principal residence of the person offering the listing. Otherwise, there is very little investors can do about these regulations.
Limitations on Property Type
One of the most restrictive regulations you may find when looking into the short-term rental regulations is a limitation on the types of properties you can use as a short-term rental. The most common form of this are cities that only permit short-term rentals in the primary residence of the investor. Unlike this rule being an exception in a particular neighbourhood, in this case it is the rule for an entire town or cities, providing no other options for investors.
In this case, there is pretty much nothing an investor can do except look for investment opportunities in another town.
Short-Term Rental Licenses
Finally, one of the latest forms of regulations to gain popularity in the short-term rental market is licensing requirements. Instead of outright banning, restricting, or regulating short-term rentals in a certain city through a set of wide-sweeping bylaws, local governments instead opted for a solution to regulate these properties on a case-by-case basis.
Now, in cities where licenses are now required, investors are required to pay for a license that either encompasses their entire portfolio or each individual property based on the requirements of the city in question. In turn, the investors are required to operate within the guidelines set out in the licensing agreement. This increases the liability of the investors when it comes to rowdy tenants who may rent these properties with the intention of throwing parties or making loud noise through the night and disturbing the neighbourhood.
These licenses can also be revoked if the guidelines are not followed, and their license renewal can be denied upon expiry at the discretion of the licensing body.
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What Does This Mean For Investors?
Restrictions and regulations on short-term rentals have forced investors to do additional research before investing in these properties. Not only do they need to make sure that the property is in a location with the proper demand in order to be profitable, but they must also make sure they are permitted to do so and ensure that they obtain the proper licensing before they begin running their investments.
Adjusting Your STR Investment Budget
Since short-term rental licensing comes at a cost, you will need to take this into account before you begin investing to ensure that you will be able to earn enough cash flow. In addition, many cities have also opted to introduce a Municipal Accommodation Tax (MAT) for short-term rentals, requiring investors to pay a certain percentage of their revenue to the city on top of their licensing and existing property taxes.
Maximizing Cash Flow by Reducing Mortgage Payments
If you want to make sure your short-term rental investments are still producing a strong cash flow despite the additional fees and taxes being introduced and imposed on investors, you should consider updating your mortgages to reduce your monthly payments.
Fortunately for you, at LendCity, we make it easy to change the terms of your mortgage. Just give us a call and one of our agents will help you find the best new mortgage product available for your investments with the fewest penalties and fees.