All you need to know about long, mid, and short term rentals and cash flow with Logan Crowder at REMAX

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Acquiring investment property is one of the most efficient ways to reach financial independence and build wealth. There is a multitude of ways to do so, and here in the Vancouver market, a common way of running investment properties is by way of long term rentals. Over the past few years, there has been a new method of investing introduced and that is short and mid-term rentals. 

 

Short term rentals are a way for the everyday landlords to generate additional cash flow through rental to vacation goers. This model of investing is incredibly lucrative especially in a world market such as Vancouver, BC where we see over 10 million travellers annually. Popular platforms to list properties include Airbnb, VRBO/Homeaway, Bookings.com and TripAdvisor. These travel network companies work on connecting homeowners to guests in need of accommodation. Although this rental method is financially beneficial, it does require more involvement from the operator. Airbnb rental operations include housekeeping, guest communication, restocking supplies, general maintenance, and running the listing. Luckily, there are select Vancouver property management companies that’ll take this hassle off you. On top of that, nightly rentals are regulated by city and strata bylaws. For example, the City of Vancouver requires this to only be allowed in both principal residences and strata approved buildings. If landlords qualify for both, they are in the position to see an increase of around 2-3x a generic long-term annual rental rate. Landlord and guest agreements also fall under the ‘license to occupy’, meaning that it is not governed by the Residential Tenancy Act. 

long-term property management vancouver

Short-term rentals have been growing in popularity for the past decade. However, with the new introduction of stricter regulation disqualifying investors, landlords have shifted to something in the middle: mid-term furnished rentals. Mid-term rentals generally consist of corporate rentals, insurance housing, travel nurses, government travel, or relocation rentals. The general time length for a mid-term rental is considered to be 3-6 months, making it generally easier and more stable to fill up your year. Landlords favour mid-term rentals based on a couple of factors: stability of rent, corporate lease, more flexibility in rental terms, and increased revenue. The stability in rent is a benefit as landlords may directly sign leases with corporations with larger financial backing. Corporate travellers will also stay for a set period of time, as either their business trip comes to an end or their house is ready to move back into. This allows landlords to increase or decrease the rent to their choice afterwards, and not stay strictly within the allotted annual rent increase based on CPI. Consumers and businesses are prepared to pay an increased rental amount for shorter periods of time with a fully furnished unit. Renting a unit for a 3 month period will generally be at a 50% increase than long-term rentals. A common misconception is that only long-term rentals exempt homeowners from the Vancouver vacancy tax, which is true. However, any rental over a 30 day period is considered a long-term rental, making landlords doing mid-term rentals exempt. 

 

When it comes to managing a short term rental you incur more expenses but the dramatic increase in income easily offsets it. Furthermore, the majority of long term landlords in the Vancouver area are self-managing their properties and dealing with issues as they arise but almost all of those who go the short term route use a professional management team making it a truly passive investment that offers great returns. In the Lower Mainland you need an average down payment of 35% just to break even on your investments but with just 20% down you are able to earn a positive return from the cashflow when operating a short or mid-term rental.property management vancouver cash flow

 

The reason majority of investors in the Lower Mainland are buying investment properties locally is for appreciation which breaks the golden rule of investing, cash flow is king. Appreciation is a bonus to buying an investment property but it can’t be the driving force behind your decision. Savvy investors buy cash-flowing property to help pay personal monthly expenses while a tenant pays down the debt which goes towards building future wealth. If you have an investment property that is costing you money every month it is now a liability more than an investment because there is a higher chance of defaulting and no guarantee you will get the big uptick in appreciation you were hoping for.

 

 

Financials – Long Term Rental

Average 1-bed rent$2,080
Average cost of 1-bed condo$628,842
Monthly cashflow$-379.37
Annual return from cashflow-3.31%
5-year return76%
Annual return15%

Even though the cash flow is negative there is still a return to be earned for mortgage pay down and appreciation

 

Financials – Short Term

Average 1-bed rent$4,000
Average cost of 1-bed condo$628,842
Monthly cashflow$790.63
Annual return from cashflow6.91%
5-year return127%
Annual return25%

 

Financials – Mid Term

Average 1-bed rent$3,100
Average cost of 1-bed condo$628,842
Monthly cashflow$180.63
Annual return from cashflow1.58%
5-year return100%
Annual return20%

 

 

Numbers used when calculating ROI

Numbers used for calculating long term rental

Downpayment: 20%

Vacancy: 0%

Annual rental increase: 2%

Appreciation/year: 3%

30-year mortgage at 2.5%

Expenses

Property tax: $125

Strata fee: $300

Insurance: $50

Utilities: $0

Property Management: 0%

 

Numbers used for calculating short term rental

Downpayment: 20%

Vacancy: Already factored into $4,000

Annual rental increase: 2%

Appreciation/year: 3%

30-year mortgage at 2.5%

Expenses

Property tax: $125

Strata fee: $300

Insurance: $50

Utilities: $150

Property Management: 15%

 

Numbers used for calculating mid-term rental

Downpayment: 20%

Vacancy: 0%

Annual rental increase: 2%

Appreciation/year: 3%

30-year mortgage at 2.5%

Expenses

Property tax: $125

Strata fee: $300

Insurance: $50

Utilities: $150

Property Management: 10%

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