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From Vacation Property to Income Property

Make the most out of your recreational investment


The decision to invest in a vacation or recreational property—a cottage, a summer home or a condo in a resort community—isn’t an easy one to make. As much as you might be dreaming of spending your summers out at a beautiful lakefront cottage, you may worry about the logistics of maintaining a property that is miles away from you most of the time, and of course the costs can be significant for something you don’t use most of the year.

For many families looking for a more practical approach to purchasing the vacation home of their dreams, as well as families who are starting to feel the financial weight of vacation properties that they already own, turning their piece of paradise into an income property is the perfect solution. Many Canadians have begun renting out their vacation homes, either part-time while not in use by the owner, or year-round as a full-time income source.

Heather Bayer is the CEO and co-founder of CottageLINK Rental Management, a vacation property rental agency. She has been working in the vacation rental industry for almost 20 years, and has seen a spike in business in the past couple of years. “We’ve been getting a lot more people who are buying properties simply to invest,” she says. “They just want to rent them out 100 per cent of the time if they possibly can.”

According to Bayer, even those who maintain a vacation property for personal use are more keen to get into the rental business “We also have owners that have had their property in the family for years and they’re now wanting to release the potential income that’s in the property rather than leave it sit empty for part of the year,” she says. “The vacation rental industry has changed so dramatically in the past 10 years. It’s more mainstream than it was back when I started.”

Bayer attributes the boom to one thing: “It’s the advent of the big renting websites,” she says. “It started with HomeAway and VRBO, and then more recently when Airbnb came on the scene, that dramatically adjusted travellers’ thinking. It’s encouraged more travellers to take vacations in vacation rentals instead of hotels, so that’s been the driving force that’s brought the industry out of infancy to where we currently are.”

As a central-Alberta based realtor, much of Kevin Lapp’s business comes from Sylvan Lake and other surrounding vacation hot spots. Though he says the Airbnb boom has yet to hit the Alberta vacation property industry with the same force Bayer sees in Ontario, Lapp says recent economic challenges might have created a bit of an uptick. “I think with changes we’ve gone through in the economy in Alberta over the last 24 months, people have taken their vacation properties and are using them as rentals to generate some income to the property,” he says. “But we’ve also always had an investor pool that would buy property and rent it out either full-time, use it themselves during specific times and then supplement rental weeks in between and generate some cash flow.”

However you find yourself interested in renting out your vacation home, Bayer warns not to overlook a couple of basic things before you list your property. “Before you even start there are two things you must do,” she says. “Number one is to see if there are any short-term rental ordinances in the area that prevent you from renting. The second one is approach your insurance company to make sure that you can get insurance for short-term rentals. Since it’s a short-term vacation rental, it’s very different from residential rental. So whereas the insurance company might allow you to do a residential rental because it’s likely to be covered under landlord-tenant legislation, in most cases vacation rentals aren’t legislated at all, so insurance companies are really wary of allowing that to happen, and if they do, they can often charge quite a lot to allow it.”

Once you’ve done your homework on legal and insurance-related matters, it’s time to put your business hat on. If you are buying a property for the purpose of earning an income on it, Lapp says it is imperative that you do a fair amount of market research before putting an offer in. “You want to look for properties that are going to meet the market and provide a reasonable rate of return,” he says. “You need to ensure that the average rental rates in the market will provide sustainable cash flow on the property. You need to determine how many months that you are going to rent the property and whether or not you are going to use it yourself for specific months.”

Bayer suggests starting by researching the competition online. “It’s very easy to research competition on sites like Airbnb,” she says. “Everything is there. You can do all the research on availability, what the seasonality is like, what pricing is like and what guests are looking for. Start there. Find out who’s already doing it, what their guests want and like, and whether they’re getting the occupancy.”

She also suggests checking with your local tourism bureau to determine where potential guests might be coming from and how long they’ll be staying.

“Talk to the tourist department and find out where people are coming from,” she says. “They will have all the information on incoming tourists. That’s important because it’s no good investing in a vacation property and then finding out later that nobody’s coming or they’re only coming six weeks out of the year.”

Once you have the market figured out and a property to rent, the final step is putting a plan in place for managing the property to ensure it’s well taken care of and desirable to potential guests. “You have to consider the ongoing maintenance of the property,” says Lapp. “Are you going to work with a property management company that is going to qualify your renters? Are they going to make sure the property is maintained, and do regular check-ins on the property? All of those things need to be taken into consideration when looking at any type of investment or recreational property that’s intended for income.”

Though the sudden popularity of online rental sites has created improved market conditions for vacation property rentals, Bayer warns that it has also raised the expectations of potential renters, as they now have more options than ever. “You must understand that we’re dealing with a public with very high expectations, so there’s a lot to do before you open the door and start charging money,” she advises.

“You’ve got to respect the fact that you’ve now become a provider to the travel industry and the travel industry is very fickle, very demanding, and guests have high expectations and high standards,” she continues. “So you need to critically look at what you have, right down to your mattresses, your bedding, the smallest appliance you have in the kitchen. It’s far more than just doing it on a whim. It really is hard work if you’re going to do it yourself.”

Despite the challenges involved, both Lapp and Bayer agree: with proper research and preparation, a vacation property can be a wise and rewarding investment, especially if you bear in mind the most valuable aspect of any piece of real estate: location, location, location. “Wherever tourist demand is then vacation rentals are going to start popping up,” says Bayer. “Short-term rentals are the accommodation of choice for many people now, so the rental business can be viable in any tourist area.”