A Growth Industry, more and more people are playing in the short-term rental business to make additional income through Airbnb and other digital sites. Statistics Canada reports, “In 2018, private short-term accommodation in Canada generated an estimated $2.8 billion….”
Short-term rentals, however rewarding can pose challenges and risks for Owners, Mortgage Lenders and Insurance Companies.
Being risk-averse, mortgage lenders are negative toward short-term rentals. Unlike income property with leases of one year or more which lenders like, short-term rental income cannot be counted on. There is also the potential for damage.
As a result, obtaining a residential mortgage for a non-owner occupied short-term rental poses a major challenge to say the least. After all, a short-term rental can be rented to a responsible couple one week and trashed the following week. The best option, though more expensive, is to apply for a commercial mortgage as lenders view such rentals as a business operation.
Though companies like Airbnb offer host damage of up to 1 million dollars, there are a number of exclusions and limitations. For additional protection, one should consider obtaining “home-based business insurance” for as little as $10 per month added to a standard home insurance policy. Otherwise, your insurer is not obligated to cover a claim with standard insurance and may decide to cancel the policy.
Examples of risk and damage in the short-term rental market:
Up to $75,000 Damage on an Airbnb Rental in Calgary
As reported by The Calgary Herald in 2015, “A Calgary couple who rented out their Sage Hill home for a weekend returned home Monday to find it had been the site of what police described as a ‘drug-induced orgy.’” They found the renters through Airbnb, who told them they required the rental to attend a family wedding; so the owners felt confident the home was in good hands for that weekend and stayed at one of their parents during the rental period. Neighbours soon reported a busload of people arrived and were partying. When the owners got back to their house, the police were already there but they couldn’t enter. According to their agreement with Airbnb “the renters were legal tenants at the time, meaning their privacy was protected under the Residential Tenancies Act.” The resultant damage was estimated between $50,000 and $75,000 which Airbnb agreed to cover.
$80,000 Damage for this Short-Term Rental in London, ON
The London Free Press, on August 20, 2019, reported that these homeowners thought they were renting to a young couple from out of town. Police reported that the home became the site of a graduation after-party with “scores” of young people attending, resulting in $80,000 damage. “Police charged seven people – a female and four males aged 18 and 19 and two boys under the age of 18 – with one count each of mischief over $5,000,” a far cry from the estimated damage.
Other cases with varying damage caused by short-term tenants have been reported. They range from as little a $299, to $8,000.
Municipalities and Condo Corporations are now grappling with restricting short-term rentals.
New, fast-growing digital enterprises come with rewards as well as challenges and risk. Taking protective measures are recommended.