Buy, rent, cash in: what you need to know before buying or converting a house, a condo, a home for short-term rental in the city

Robert Landry, Real Estate Broker (Residential and Commercial)

With the growing popularity of platforms like Airbnb, many investors are turning to short-term rental (ST) real estate to generate income. Is it still profitable in 2025? It is important to know and understand the rules, costs, advantages and disadvantages related to this strategy.

Faced with the housing crisis in Quebec but also for various reasons, restrictions and even bans have been put in place in many municipalities (Montreal, Quebec in particular), relating to short-term rentals including via platforms like Airbnb.

1. Municipal restrictions

Residential areas are particularly affected, and some cities impose severe fines for non-compliance. This is without counting the rules put in place by condominium administrations for example.

Some municipalities may also require local permits in addition to registration with the CITQ. Montreal and Quebec City among others restrict short-term rentals in certain areas or impose specific conditions.

2. Mandatory registration with the Corporation de l’industrie touristique du Québec (CITQ)

Since 2023, short-term rental properties (less than 31 days) must register with the CTIQ – obtain a registration number and display this number on all listings. Non-compliance with this requirement can result in significant fines. Airbnb or other platforms can also suspend or remove non-compliant listings. Authorities can conduct inspections to verify the compliance of the properties.

The owner must therefore collect the lodging tax and remit it to the government.

3. Insurance

It will be important to discuss with your home insurer because standard insurance may not cover damage or incidents related to a tourist activity. A review and, if necessary, a thorough discussion on what platforms like Airbnb cover in addition to home insurance will be very useful. An occasional activity – offering your home on Airbnb a few days a month but occupying it the rest of the time – will have a different impact compared to offering a home for short-term rental 365 days a year.

4. Costs to consider

As location will be key (proximity to transport, attractions, supermarkets, etc.), the initial investment may be higher in a tourist area than it will be in a suburban residential area for example, so a purchase and financing cost to be carefully analyzed.

Operating costs: regular maintenance, professional cleaning, reservation management, must be the subject of a thorough analysis to determine the profitability of the operation. It should not be forgotten that Airbnb income is taxable just like rental income. While tax deductions (mortgage interest in the case of a full-time operation, maintenance, advertising, etc.) can lighten the tax burden, they require good accounting.

Advantages of Airbnb investment or CT rental

Higher gross potential income: CT rentals, particularly in popular tourist areas (in winter for skiing, in summer for vacationing), such as the Laurentians, the Eastern Townships, are likely to provide higher income than long-term rentals.

According to recent data, the average income for an Airbnb in downtown Montreal is $3,741 per month. However, it is important to note that expenses associated with short-term rentals, such as cleaning and management fees, can significantly reduce profit margins.

Flexibility: it becomes possible to use the place as a secondary residence for one's own needs and then rent it out at other times of the year (hybrid use).

Real estate valuation: Well-located properties, offering potential for use (full-time or part-time), because they have a higher probability of occupancy than less well-located properties, will tend to increase in value, which also adds to long-term returns.

Disadvantages and risks of CT leasing

Touristic Zones and Seasons

In addition to the compliance and restrictive regulations that may exist, certain points can constitute risks – or even disadvantages. Among others:

The seasonality of demand. Regions can experience peaks in activity according to the seasons, causing demand to fluctuate (and drastically decrease) during certain seasons or times. The problem is increased if you yourself plan to use the asset during a holiday period that corresponds to a high season. Hence the importance of carefully assessing your personal objectives and your business objectives before launching – or before choosing a specific location. This will be all the more important if your purchase or conversion decision is a business decision rather than an occasional cost write-off decision. Both approaches are valid, but it is important to know what you want. An imperfect alignment between the two could complicate profitability with high fixed costs.

Underestimation of operating costs. Operating an Airbnb involves more than just posting an ad. With cleaning, potentially more frequent maintenance, specific insurance, Airbnb commissions, the little “extras” you want to offer your guests, profit margins can quickly diminish. Remember that you are in a business that is similar to tourism, in competition with the hotel world in some cases. Which means that the “extra” that will attract positive comments on the platform is important.

Conciliation with neighbors. Neighborhood complaints are common in residential neighborhoods or buildings. The constant comings and goings of guests, sometimes at “holiday” times while neighbors are on a “normal” schedule, can create tensions and sometimes even disputes. CT rentals can attract noisy or disrespectful tenants. When available, landlords’ comments on the platform about the member should be taken into account before accepting a request.

Increased competition. Competition, especially in very touristy or business areas, can be very fierce. To stand out, high-end amenities or additional services can increase your initial costs as well as your operating costs.

Time-consuming management. Managing reservations, arrivals and departures can be stressful or occur at times that do not suit you, especially without the help of an agency (which will further reduce your margin).

Increasingly strict regulations. I have stressed the importance of compliance with regulations at various levels. Beyond what exists, it is important to keep an eye on the evolution of these regulations which can evolve quickly and cause uncertainty for investment. Cities like Montreal limit Airbnb rentals to primary residences.

Know the Regulations!

Is it still profitable?

The answer to this question, considering the above, remains tinged with nuances, depending on the location and the type of management.

• Urban areas (Montreal, Quebec City, Gatineau): These cities attract many tourists and business travellers, thus offering high revenue potential. However, regulations are often stricter, and competition can be intense. According to AirDNA, Montreal would have at the time of writing (January 2025), 13,356 active listings, with an average occupancy rate of 59% and an average annual income of $14,900 per property. Quebec would have approximately 2,950 active listings with an average occupancy rate of 63% and an average annual income of $20,800 per property.

• Highly Touristic Areas: Areas like Charlevoix or the Laurentians can offer lower acquisition costs and stable tourism demand, especially during tourist seasons. Regulations are sometimes less restrictive, but it is always essential to check local laws.

A property in a very touristy area remains a safe bet, but high purchase prices can limit profitability.

Management, depending on whether you decide to use an agency or manage it yourself, can have an impact on your margins, but it remains to be determined what balance you want - depending on your objectives. Using a reliable agency certainly has a cost but can also have an impact on your quality of life, or on the optimal allocation of your personal and professional time.

Elements to make the investment profitable

1. Find the relevant statistics (Know your market). Depending on the region, sources like AirDNA can provide data or market reports in your area, on average revenue per property by type, average price per night in each region, market trends, competitive data including on the performance of properties in the region. Such sources will help analyze profitability by sector, evaluate an investment opportunity. However, to access precise and detailed data, it may be necessary to subscribe to a paid subscription. For free and limited data, AirDNA offers insights via its MarketMinder tool. See above the examples for Montreal and Quebec.

2. Prepare the property for Airbnb. Ensuring that the property is ready – beyond regulatory compliance elements – is more than just putting a bed in an extra room or a set of furniture in a dwelling. Optimizing space can have an exponential impact on the results. Imagine that the increase in value that would generate $10 more per night represents a potential of $3,650 per year.

3. Create a transparent and flexible check-in process. While the process can be easily presented, unforeseen events can occur (flight delay, traffic) with impacts on arrival. Your guest must now contact you for information or access (keys, WIFI code, specific needs), causing a horrible start. Think about approaches to anticipate these unforeseen events, allow a comfortable start that will have an influence from the start on the comments you will have on the platform. A contingency plan, clear messages via text message or email, a clearly communicated entry code, the availability of your cell phone number, are elements that can improve the experience.

4. The little extra. Beyond facilitating communication, a few small gestures can make a difference. If you have coupons for popular stores (supermarkets or others that are nearby), a discount at the cinema, a choice of coffee shops, and if you wish, up to a bottle of wine, flowers – for stays of more than 5 days for example, but there are multiple options in between these extremes – to the limit of your imagination – that can be considered.

5. After departure. Once your guest has left, you can still make a difference. The hours or days that follow are an opportunity to influence the comments you will receive. A follow-up (call, email, QR code leading to a few questions, will not only have an impact on testimonials which over time are a free marketing tool, but on references or even repeat customers. A tour of the premises to ensure before cleaning that nothing is damaged before the next guest arrives. Of course, the quality of your own review is also important. This is the very basis of the Airbnb system. It is an attribute of the platform that lays the foundation for mutual respect. It will be especially important to take care of a response to a positive review, or to show concern for a negative review.

These few ideas are just a few angles to succeed in the CT rental sector. There are many articles, books and videos on the success factors for the Airbnb and CT rental operation.

 RERERENCES:

Montréal: Short-Term Tourist Rentals

Gatineau: Établissement de résidence principale de type Airbnb (French only)OACIQ : Airbnb-type short-term tourist rental restrictions OACIQ : Restrictions à la location touristique à court terme de type Airbnb LES AFFAIRES, 30 janvier 2025: Montréal impose des restrictions majeures à la location à court terme de type Airbnb 

Do you have any comments or experiences to share? Please feel free to do so in the field provided below.