The Short-Term Rental Market in Prince Edward County
Prince Edward County is an extremely popular weekend getaway destination, so it stands to reason that there is a thriving short-term rental market here. In 2016, more than 1,000,000 people visited the County….not bad for an area with a population of less than 25,000! Rumour is that it’s one of Airbnb’s top growth areas and it’s easy to understand why.
As an established wine destination with an ever-growing craft brewery and foodie scene, beaches, three provincial parks including the much-loved Sandbanks Provincial Park and an expanding art and cultural scene, the County has much to offer locals and tourists alike.
NOTE: The County has recently enacted regulations and licensing for short-term rentals. Click here to read this important information.
Why Rent Out Your PEC Home or Cottage Short-Term?
While many people in PEC rent out their home when they aren’t using it themselves, there’s an ever-increasing group of people who are buying properties here with the sole purpose of renting them out short-term.
If you’re a part-time host, you can expect to offset most (if not all) of your basic costs, and full-time hosts are almost always cash positive (sometimes to the tune of $500 or $1000 or more a month).
Renting out your home or cottage short term is a great way to earn some cash while building equity and hoping for prices to appreciate.
What to Expect
The Rental Season
The rental season in the county has traditionally run from May to September, though as its popularity increases, we’re seeing people throughout the year. Your busiest time will certainly be through the summer months.
Rental Rates
Rental rates for short-term accommodations vary greatly, and depend on location, size, condition, features, reviews and marketing). A quick survey on Airbnb in the summer of 2017 reveals:
- One bedroom cottages in out of the way locations starting at about $80/night
- 2 bedrooms starting at at least $100/night
- 3 bedrooms starting about $150/night
- 4 beds starting about $200/night
$250-$300/night is the most common range, and larger, fancier spots with multiple bedrooms, pools and the like renting for well over $400 or $500/night.
Vacancy Rates
While vacancy rates depend on a lot of factors (location, weather and seasonality, your marketing activities and photos, reviews, etc.), you can conservatively expect to book out your home or cottage 30% of the time.
Considerations When Buying a Short-term Rental
There are three primary short-term rental markets in Prince Edward County:
- People who want to rent a cottage and live the cottage lifestyle
- Wine warriors and foodies looking for weekend accommodation
- Family gatherings, parties and wedding guest accommodation
When you buy a property with the primary purpose of renting it out short-term, consider the following:
- Location, Location, Location – Everyone knows the 3 Rules of Buying Real Estate: location, location, location. Well, it’s even more important when buying a property to use as a short-term rental, as your location will dictate how much you can charge per night and how often you’re booked. To help you decide which PEC community to invest in, consider the following:
- Proximity to beaches, wineries, festivals, craft breweries
- Proximity to the County’s popular tourist events and areas
- If you want to appeal to cottagers, focus on West Lake, East Lake, Bloomfield and Picton
- If you want to target weekend wine warriors: Hillier and Wellington are the places to be
- Proximity to highways and the distance from Toronto, Kingston, Ottawa and Montreal
- Size – Bigger is not necessarily better, as keep in mind that will attract big groups of people who want to host parties, which could go badly fast (however, there is definitely a demand for larger places). What is important? The number of bedrooms. It’s one of the main criteria vacationers use to search for a property, and it will certainly impact your price per night.
- Waterfront? – Your short-term rental doesn’t have to be on the water to be popular…though waterfront properties are usually the first to be booked.
- Features – Short-term vacationers get excited about the sexy stuff, the things they don’t have at home:
- Pools and hot tubs (though these require regular maintenance)
- Outdoor decks and BBQ’s
- Multiple living areas
- Easy parking
Other Amenities to Consider
- Furnishings, appliances and equipment – You’ll get a much higher price per night if you furnish it with tasteful and good quality furnishings. While it may be tempting to put in that 20-year old sofa you have in the basement, nobody will get excited by it. Buy furnishings in neutral colours, but avoid whites and beiges – the wear and tear from multiple short-term vacationers will quickly reduce their attractiveness. Remember to budget for all the extras too: dishes, pots, pans, towels, sheets, bed covers, cutlery, etc. Again, you want to be good quality items, so you have to replace them less often…but not so high-end that if someone ruins a towel, you’ll be upset.
- Dishwasher, laundry and A/C- These are definite nice-to-haves, and your guests will appreciate it, especially if you’re renting to bigger groups of people or families.
- The Fun Stuff – If you want your home to be popular, make it fun and take the opportunity to surprise and delight your guests. Consider investing in a ping-pong table, kayaks, bikes, indoor and outdoor games, an ice cream maker, outdoor lounge chairs, a Slip ‘n Slide, etc.
- Internet and WIFI – Great wifi is critical to keep your guests happy and avoid bad reviews. There are a few internet provider options in PEC, and while they aren’t as fast as what you’re used to in the city, they’re more than adequate.
- Cell Phone Service – Before you put an offer on a place, make sure your phone works at the house. There are a few cell dead zones and cell-service-challenged areas, so best to avoid those if you can. Your guests will appreciate it.
- Cable – You can probably save yourself some money here by investing in a Netflix account that your guests can use on rainy days.
- Get a pass to Sandbanks Provincial Park – it’s transferable and admits a carload of people to one of Ontario’s best beaches
Financing and Costs
The key to any investment is getting the return that you want. Doing the short-term rental math is a bit different than running the usual investment numbers. Maintenance, property management costs, furnishings, professional cleaning and vacancy rates all need to factor into your math.
Financing a short-term rental property involves these special considerations:
- Down payment: if you already own a property, your lender will probably require a 20% downpayment
- Seasonal properties: banks look at 3-season properties differently when it comes to mortgage financing. If you need a mortgage, talk to your lender before signing on the dotted line so you know how they see things. [Here is a good overview in the Globe & Mail]
- Qualifying: When determining how much you can afford, your lender will not likely take into consideration the rental income you’ll be making from renting it out short-term. Banks like 12-month leases and guaranteed income.
Remember: before purchasing a property to use as an Airbnb, ensure that it fits within the County’s rules and regulations and be prepared for the licensing costs.
Insurance
Be honest with your insurance company about the intended use of the home or cottage. Yes, using your home as a short-term rental will mean higher premiums…but it’ll also mean you’re covered in the event something happens (which is kind of the whole point of insurance).
Airbnb and some of the other vacation rental sites offer additional insurance options that are worth considering too.
Taxes
Always talk to your accountant about taxes and don’t trust the internet!
The money you collect from renting out your property is taxed as income, but you will get to deduct an apportioned amount of the cost of the interest on your mortgage and operating expenses.
When you sell the property in the future, it will likely be subject to capital gains taxes (unless it’s your primary home). Your accountant can you fill you on how that might affect your individual tax situation.
Also: you should talk to your accountant about whether or not you should be charging HST.
Managing Your PEC Short Term Rental
Managing a short-term investment property takes time. Some of the activities you’ll need to plan for:
- Licensing
- Marketing
- Managing bookings and rental contracts
- Managing deposits and payments
- Check-ins and check-outs
- Coordinating cleaning schedules and inspecting the property post check-out
- Managing one-off issues (wifi not working, damage, etc.)
It’s possible to outsource the property management functions; this will generally cost about 10-12% of the gross monthly income.
Marketing Your PEC Short-Term Rental Home or Cottage
You’ll need to plan for the following:
- Advertise online – While there are dozens of short-term rental sites out there, the most popular ones are:
- Airbnb
- Homeaway.com
- VRBO.com
- Dedicated website or Facebook page that you manage yourself
- Invest in Beautiful Photos – You’ll want to invest in some excellent photography….people booking your home will be doing so by looking at the photos, so it’s worth the $200 to stand out among the competition.
- Reviews – Reviews are the cornerstone of the short-term rental market, so you’ll not only want to make sure people have a fabulous time at your house but that they then talk about it! Everybody reads the reviews before booking, and properties with more reviews get booked at faster, and can often command a higher per night rate. Sending a quick follow-up and asking for a review is usually all it takes.
Setting Your Price
- The easiest way to find out how much you can rent your property for is by looking at similar properties in similar areas with similar features, on popular websites. Your agent can likely guide you as well. Prices vary a lot depending on what season it is and of course, holidays and big festivals.
- If you use Airbnb, they have a feature where you can agree to have them set the price for your property, depending on all the data they’ve accumulated about seasonality and the other area properties. I’ve seen their recommendations range from $275 to $650 a night for the same property.
- Most people charge a cleaning fee on top of the regular per night fee. It helps your property look cheaper and protects your margin.
- A lot of people offer discounts for longer stays or repeat guests. Longer stays mean less cleaning costs and check-in/check-out hassles, and repeat guests offer peace of mind.
- Expect that quite a few people will try to negotiate your rate…so keep that in mind when setting the initial price. You don’t want to look so expensive that everybody clicks by, but you don’t want to be so cheap that you can’t afford to negotiate and make people feel like they got a deal.
Managing Bookings/Deposits
Some best practices for managing bookings:
- Respond quickly to booking requests – People using Airbnb, vrbo, etc. often email multiple people at the same time. A quick response time will increase your booked rate.
- Consider having a standard check-in date – that’ll eliminate the ‘orphan’ days that often happen between bookings. If you’re more likely to only rent on the weekends, make sure you have a weekend rate and a minimum booking (e.g., 2 or 3 nights).
- Always use a contract! Airbnb lets you upload your own terms, and the other sites allow you to communicate directly with the guest.
- You’ll always want to consider deposits, cancellation fees, payment timeframes, and transaction fees (if you’re using Paypal). Airbnb certainly has the smoothest method to collect deposits, rent and deal with cancellations, but of course, you lose some control.
Maintaining Your PEC Short-Term Rental
Don’t underestimate the benefits of having some reliable locals to help you maintain the home. At a minimum, you’ll want to partner with:
- At least two reliable cleaners (who can work on short turnarounds and evenings/weekends)
- Gardener/grass cutter
- Handyman
- Water treatment company
- Propane supplier (many homes in PEC are heated with propane)
Other trades you may occasionally need: a plumber, electrician, roofing guy, septic tank cleaners and heating/cooling specialists, pool & hot tub maintenance companies, snow removal/plowing.
Risks
Like every profitable investment opportunity, the short-term rental market is not without risks. Potential issues could include:
- Problems getting affordable insurance
- Bad guests, damage and theft
- Higher than expected vacancy rates
- Frustrations with the amount of time you spend managing it
- Additional changes in local regulations dictating the short-term rental market
If you’re thinking of entering the short-term rental market in Prince Edward County, make sure to educate yourself, balance the risk and partner with a real estate agent who understands the unique aspects of this marketplace. We’d be happy to connect you with a local expert!