I spoke with Airbnb hosts about paying off their mortgages with rental profits
This is what I found out
With Airbnb becoming more popular and mortgage rates going further down, some of the most entrepreneurial hosts in Toronto are not only trying to make some cash on the side but are actively expanding their real estate portfolios.
Most active hosts claim that proceeds from Airbnb can easily cover all the associated monthly expenses given that property has a minimum occupancy rate of 60–70%. In order to achieve such high numbers, it must be appealing to as many guest as possible.
With the help of several active members of Toronto host community I decided to deconstruct a perfect Airbnb property and find out how it looks like.
- Where should it be located?
Perfect donor property should be centrally located and easily accessible by public transport. Specially important in winter (here in Toronto). Of course there are plenty of cool destination properties outside the city but Downtown seems to produce best possible ROI with minimal efforts.
- Condo or freehold?
Freehold certainly will not create any problems with condo board of directors in the future but usually comes at a premium and might require more maintenance. Condos on the other hand are usually centrally located and require virtually no maintenance as everything is taken care of by the property management. Therefore condo makes a great choice being easy and cheap to carry. It’s important to keep in mind that Airbnb is NOT allowed in many condominiums. Do your homework.
- What is a good size?
Different size properties will attract different types of guests. Larger 2 bedroom apartments which can accommodate 5–6 people will tend to attract more families. Extra people = extra money. Smaller units will attract single business travellers or couples. Less money but also less bills to pay.
- Is parking necessary?
Certainly a great bonus for your listing but not always worth the money. Majority of travellers which are staying in downtown usually arrive by airplanes or trains thus rarely require a parking spot.
For the sake of the experiments let’s look for a condo in $300,000–310,000 range in downtown core. With at least 500 sqft of floor space and lower condo fees. Quick search on Dweller reveals several candidates matching our “Perfect Airbnb property” requirements. I decided to pick one in the trendy King St East neighbourhood because of great resale potential due to amazing changes currently happening in the area.
- 1BR spacious 500 sqft Airbnb friendly condo located on the higher floor of a well managed 10 year old building
- No parking, no locker
- Price is $310,000 + closing expenses. Monthly condo fees of $305 including water and hydro and property tax of approximately $1,830/year
Let’s do the math!
- $31,000 downpayment of 10%
- $1,125 land transfer tax (after first time homebuyer rebate)
- $1,600 closing and legal costs
- $2,500 furnishing and equipping an apartment (some Kijiji, some Ikea)
Total initial investment required is $36,225
- $1,250/m mortgage payment (mortgage amount of $279,000 with 2.5% rate)
- $305/m condo fees
- $153/m property tax
- $80/m internet and condo insurance
- $90/m minor repair fund contribution
Total expenses including all the utilities (included in condo fees) and cleaning fees (usually charged extra) are $1,878/month
Quick search on Airbnb shows that similar units in the area rent out for an average of $110–120/night.
If we rent out our perfect Airbnb property at $110/night we will only need an average occupancy rate of 56% which is claimed to be below average for active and welcoming hosts.
- Will hosting Airbnb guests take up all of my free time?
With highly advanced Airbnb App, numerous on demand cleaning services, Skype and other productivity tools some hosts manage to run their mini hotels from overseas spending less than 10 minutes a day!
So the big question remains the same. Will Airbnb pay for my morgage? It sure looks like it will!
***Feel free to reach out to me @balikoti to find out more about donor properties or pro host @ispekhov to learn more about creating a perfect Airbnb space