Some people buy one or more condos with the goal of renting them out long-term, while other new owners rent on occasion (when going on vacation, for example) on the Airbnb platform or not (depending on the context). What about the rules, implications, costs and profitability of such an operation? We take a look at a phenomenon whose popularity is growing.
First of all, we must determine the type of rental. Long-term rental with lease or short-term rental (31 days or less), many times a year or only occasionally (during your vacation, for example)? For each of these types of rentals, there exists a different set of rules. Restrictions and obligations may also be put forward in your co-ownership agreement.
Long term rental
Buying a property in order to rent it out long-term can be interesting, though it isn't obvious that it will be profitable (more on that later). The first thing to verify is if there is an opening in your co-ownership agreement for this type of practice. If so, this opening will often be paired with restrictions and obligations. Take, for example, the co-ownership agreement of the 352-unit project Quartier 54, in Montreal's Rosemont neighborhood. In this building, rental with lease is allowed under certain conditions. Olivier Coté, a member of the building's condo board, claims that this kind of rental is very supervised. An article in the agreement touches upon this topic.
It mentions that, in the 15 days following the signing of the lease or the beginning of rental, the owner must give the board the following: the beginning and end date of the rental; the renting co-owner's contact information; the contact information of the party renting the unit (phone, e-mail, address); a copy of the renter's third-party liability insurance; a signed declaration from the renter certifying that a copy of the agreement as well as the building's rules and regulations has been given to them and proof that they engage to respect said documents. Anyone infringing on these rules will be handed a $500 fine for a first offence and $1000 for any additional offence.
In her blog, Élise Beauchesne, president of Solution Condo, adds that the owner should prepare a clause specifying that the renter is responsible for any fees incurred when infringing upon a rule. They should also be insured for their belongings on top of having a third-party liability insurance.
A person which to purchase a new condo with the goal of renting it out should also analyse the neighborhood, see what the competing offer might be (is it too large or too small?), look at what services are offered nearby (proximity to a supermarket, for example) and see the way the building has been managed in the last few years by consulting the minutes from past meetings.
One of the advantages of purchasing a condo for rental is the fact that rent is not controlled by the Régie du logement for the first five years, making it possible for the owner-landlord to adjust rent prices however they see fit to adjust to the market.
Is long-term rental profitable?
Although you benefit from a five-year vacation from fixed rent prices, is renting necessarily profitable? According to Ghislain Larochelle, president of ImmoFacile, the long term rental of a new unit is very difficult to make profitable. Many elements will eat away at your profits. There can be broken equipment, painting to do after a tenant moves out, mortgage fees that may increase during their occupation, building defects that may surface (which may also require special contribution fees) and co-owning fees that may be very low at the beginning (due to over-evaluation by the promoter) and go up rapidly in the past. This is a frequent occurance. Finally, you shouldn't forget real estate brokerage fees that could climp up to $20000!
It is advisable to inform your insurance company no matter what the case might be (long term or short term), says Caroline Phemius, spokesperson for the Insurance Bureau of Canada. "An insurance company could decide that a dwelling that is not inhabited by the current owner and rented out is actually a commercial activity. It will then require that the owner purchase the appropriate type of insurance."
Other elements must also be considered when helping the owner settled on an amount for rent. Municipal and school taxes, insurance, mortgage payments, heating and electricity (if these fees are included in the rent) all factor in. You must also plan for any repairs, small renovations between two tenants, tenants that don't pay their rent (and it does happen!), increases in the municipal evaluation... not to mention the fact that rent may go up in order to plan for eventual renovations.
Short-term rental is very profitable, according to Ghislain Larochelle. It can appear in three forms: Airbnb type rentals, rental to students and executive rental to businesspeople in town for a spell. It is however very rare that this type of rental is allowed in co-owned buildings due to the potential irritants they may cause (constant back-and-forth, noise, etc.)"
For these reasons, many co-owned building forbid this practice. In the Quartier 54 building in Rosemont, any rental for a period of less than 12 months is forbidden. "There is however one exception," says Oliver Côté. "That's when a shortened rental period is created in order to consent to a long-term rental lease under the Régie du logement's rules that comes to an end on June 30th." Rental of separate rooms to separate individuals is also forbidden in this building.
Since 2015, short-term rentals are also controlled by the Act respecting tourist accomodation establishments. This law makes it obligatory for owner-landlords to hold a tourist accomodation permit if renting to tourists is done on a regular basis. What exactly does "regular basis" mean, however? "The law isn't particularly clear in this regard, and it's very much open to interpretation," says Hans Brouillette, director of public affairs at the Corporation des propriétaires immobiliers du Québec (CORPIQ). Thus, a unit offered for rental every weekend is considered a regular rental while a unit offered every year during a festival or during the owner's vacations isn't. Additionally, any rental over more than 31 days is not considered a short-term rental from a legal point of view.
People who break this law can be fined between $2500 and $25000. "However, since the adoption of this law, few fines have actually been applied," says Mr. Brouillette. "Application of the law is soft, and the Régie is too permissive when the time comes to actually interpret it."
In short, the law that was designed to limit lodging in private residences for touristic purposes (designed not to impact the hotel industry) has some flaws, according to Mr. Brouillette.
However, the mass appearance of properties allowing for short-term rental of units isn't likely to happen overnight. First because co-ownership conventions rarely allow it (and changing the terms of a convention is complex, as it requires double majority, according to Mrs. Beauchesne) and secondly because zoning in different neighborhoods or cities rarely allows for commercial use. The LB9 condo project in Québec City remains a good example of this.
The LB9 case
In spring 2016, a 150-million dollar project was announced by Groupe Bolduc in Quebec City. The announcement claimed that part of the 250-unit project would be equipped with a clause allowing for short-term, Airbnb-type rentals. The promoter presented this as a first in Canada and claimed they owuld respect all obligations tied with this type of rental and obtain all required permits. However, local government stopped the promoter's intentions cold by claimed the project was not located in a commercial zone where this type of activity is allowed.
One call to the project's sales office confirmed it. We were told that the borough was studying the promoter's demands and that the availability of short-term rentals was pushed to later. This type of rental was more likely to happen in the second phase, they said, which was planned for 2020 and was to include 198 condo units.
Being in the right sector
The question of zoning therefore becomes primordial. If a landlord isn't located in the right sector, their dreams of a short-term rental project can be dashed unless they decide to ignore the law and risk the hefty fines associated with infringing said law. To be conform, the owner or co-owner must ask for attestation with the Corporation de l'industrie touristique du Québec (CITQ). (Québec already has 8500 units certified as touristic residences.) When they receive the demand, the CITQ informs the concerned borough or town and they then have 45 days to oppose the demand if the zoning rules do not allow for a touristic residence at the intended address.
Renting out for short term or long term has many rules, and it's imperative to know them well before jumping into such an adventure.