June 21, 2023 | Investing

Long-Term Versus Short-Term Rentals: How They’re Different

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Do you notice how some people never seem to sweat it, even when the news is filled with reports of high interest rates and rising inflation? How can some people remain so calm in the face of uncertainty? It’s possible they’re just a carefree type of person who takes things as they come. Some people are like that. Or maybe they’ve received a large inheritance or financial windfall that exempts them from the worries the rest of us face. 

There is another possibility. Those looking with confidence into the future could be real estate investors who have made careful and wise decisions about where to put their money. For many people, real estate represents one of the safest ways to grow and maintain wealth, and the GTA is full of opportunity. 

Recently, short-term investments such as Airbnb have risen dramatically in popularity. In this post, we’ll take a deep dive into both short-term and long-term rentals to see the advantages, disadvantages, and hidden opportunities of both.

Should You Stick With Tradition?

For years, investors bought up available properties to find a long-term tenant. Back then, short-term rentals were practically unheard of, unless you were talking about a Bed and Breakfast as a quaint alternative to a hotel or motel. The Internet was not yet widespread, and sites like Airbnb and Booking.com were a gleam in the eye of a future tech genius. Times were simpler then!

However, long-term rentals are still the favoured vehicle of many investors even today. With unprecedented demand for housing in the GTA, you can take your choice of qualified tenants.

Whatever path you choose, Team Rajpal is here to support you every step of the way! Find out more about how we help investors at all levels right here.

The Advantages of Long-Term Rentals

Ease and simplicity are the primary advantages of choosing a long-term investment. Provincial and municipal rules are less stringent, and managing the property tends to be less work. Your success all hinges on finding the right tenant, but once that falls into place, it’s mostly smooth sailing:

  • You have passive income rolling in every month. Unless the property needs maintenance, you don’t even have to do any work to earn this income. That means no more trading time for money!
  • You can hold a valuable asset at little to no carrying cost or even at a profit. Since the monthly rental income covers your mortgage payments, you can own the property for as long as you want.
  • Your equity and purchasing power grow as the house increases in value. Long-term real estate values consistently trend upwards, which means your net worth will grow as well.
  • You can sell the property a few years down the road at a significant profit. Alternatively, you can keep it in the family for future use or to create generational wealth.

The Downsides of Long-Term Rentals

If owning and managing an investment property were easy, everyone would jump on board. You can earn money without trading time or labour for it? Where do we sign up? Real estate investing can be profitable, but that doesn’t mean it’s for everyone. Before you start scouring available listings, you should be aware of the challenges involved. 

  • Your success depends on finding the right tenant. If you end up with someone who is late with their payments or damages the property, you have to begin the eviction process, which takes time. During that time, you may have to cover the costs of the property from your own pocket.
  • No matter how new or well-maintained the property is, things can go wrong; it is only a matter of time. Those urgent phone calls from an anxious tenant are inevitable at some point.

These challenges can be overcome by vetting tenants carefully and having a financial cushion to hold you through the lean times. Keep in mind that you don’t have to face any of this alone. Many real estate teams also work with investors and landlords to help them find a suitable tenant who stays for the long term.

Are you an existing GTA investor searching for the right tenant to make your venture a success? We can help! Find out more right here.

The Growing Popularity of Airbnb and Short-Term Rentals

The City of Toronto defines a short-term rental as all or part of a residential unit rented out for 28 consecutive days or less. People visiting the city don’t always want to be limited to hotels and motels. They want the whole place to themselves, complete with kitchen and parking, and they are willing to pay for it.

This trend led to a sudden increase in landlords listing their units on Airbnb and similar sites instead of finding a permanent tenant. However, the rise in these types of rentals puts stress on an already critical shortage of affordable housing. In an attempt to keep units available for residents, the City of Toronto imposed some strict guidelines which can present many challenges for investors. 

The Challenges and Drawbacks of Short-Term Rentals

  • You can only use your primary residence as a short-term rental, and that rule extends to secondary suites and laneway houses.
  • You can rent your entire house out for a maximum of 180 nights per year. 
  • You must have a license from the City of Toronto before listing your home as a short-term rental, which will cost you an annual fee.
  • Any platform who hosts your listing is subject to a one-time fee plus a small amount per night that the unit is rented out. This could make it harder to get your rental approved by major sites like Airbnb and Booking.com.
  • If your unit is a condo or you are a tenant yourself, you will need permission from the condo corporation or your landlord to proceed.

The Benefits of Short-Term Rentals

Rules, rules, rules! With so many regulations, why would anyone even bother with short-term rentals? It depends on what type of investor you are. For the right person, they can be less stressful and more profitable than having a permanent tenant.

  • Consider the fact that you can charge $200 or more for a single night in your home. You only need to rent it out a few days a month to earn as much or more income as a full-time rental.
  • Did you get a bad tenant? There’s no need to worry about a long and drawn out eviction process. They will be gone in a few days, regardless.
  • Short-term rentals can cost less to get started since they use your primary residence. There’s no need to purchase a second property. It could be the perfect opportunity for first-time investors!
  • Since most short-term rentals are pre-paid to the platform that hosts your listing, you don’t have to worry about chasing the tenant down for payment. 
  • If you love to travel, you can rent out your home and earn income while you’re away.
  • Short-term rental platforms often have a rating system that allows you to quickly vet tenants based on past behaviour.

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A Blended Strategy

If you’re struggling to decide the best path, why not try a blended strategy? Your opportunities are endless in a real estate market as vast and diverse as the GTA. If you’re a beginner, you could get started with a small condo that you rent out while you stay with friends or are away on vacation. 

Alternatively, you could buy a house with a secondary suite where a long-term tenant covers all or most of your mortgage. For more seasoned investors, you can add multiple properties to your portfolio, and the sky’s the limit!

Do you want to talk more about the hidden opportunities all around you in the GTA? We have our ears to the ground and are ready to guide you to the best possible path for you. Reach out today at  info@teamrajpal.com or call 647-875-8000 for more information or to get started.

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