2nd Suites With Other Investment Strategies - Part 4: Short-Term Rentals (Airbnb)

Second Suites For Student Rentals.jpg

Many investors are starting to take a more serious look at short-term fully furnished rentals as an investment strategy, mostly through Airbnb. This may be due to certain landlord-tenant restrictions under traditional leases, or the problems some investors have had with their long term tenants.

In this article, we discuss the possibility of using a second suite for short-term rentals, but first let’s quickly discuss their benefits.

The big advantage of short term rentals using tools such as Airbnb, HomeAway, and VRBO is the amount of control you have and the ability to seriously increase the appeal of a place with good design and marketing.

Check out a new show on Netflix called Stay Here, where the hosts take tired old properties and transform them to vacation magnets using excellent marketing techniques and amazing design. This is the first show I’ve ever watched on Netflix while holding a pen and a notepad (think I can write off Netflix as a business education expense?).

I myself personally am a big fan of Airbnb. I use it extensively when I travel and also have a unit that I rent out myself. I especially enjoy the laundry aspect of a home or condo compared with a hotel room.

Keep in mind that short term rentals are not just for vacationers, but folks who need a place to stay for a relatively short period of time, such as several months, or even up to a year. They want a comfortable place to stay for a reasonable price. These people may include the following:

  • People doing major renovations to their homes and don’t want to stay in their house

  • People on contracts for a job (a common one we come across are university professors and health care professionals)

  • People on work visas

  • Grad students who may only need a place to stay for a semester or two

  • People who are in a town to stay close to a friend or relative in hospital

No one likes to stay in a hotel for an extended period of time. Think about it, do you want to pay $5 for each piece of laundry, and eat cardboard bacon every morning?

“I can’t believe it’s not…..” That’s cause it isn’t

“I can’t believe it’s not…..” That’s cause it isn’t

Okay, enough singing the praises of short-term rentals. There are drawbacks, and I actually wrote an article about traditional renting vs. Airbnb awhile back, and outline the pros and cons of both. Check it out here:

Airbnb vs Traditional Renting - Which Is Better?

Now to the main topic - adding a legal second suite to a single family house for short-term rentals.

Using Second Suites

The advantages here are the same as those for just a single-unit. So if you can be profitable for a single-unit, and 2-unit home just means potentially double the income.

The big draw of Airbnb and similar rental sites are the availability of a kitchen and a laundry unit, which is suitable for a family. The rent commanded can be quite high, as a larger group can afford to pay much higher. Let’s do some quick back-of-the-envelope math.

A family of 4 renting 2 hotel rooms can run $200 to $300 a night. One nice unit in a home that can contain the whole family can easily fetch $150 a night on Airbnb. At 50% vacancy, a 2-unit home translates to $4500 a month. So as long as the unit is nice, clean and has the necessary amenities, this can be incredibly profitable.

Owner-Occupiers Using 2nd Suites For Airbnb

This strategy is especially ideal for homeowners who are living in one of the units, and using the other as a rental, where they can act as host and address any issues in a timely manner. These homeowners can also do their own cleaning which makes the property more desirable because guests won’t have to pay for a cleaner.

So it’s really good for folks who are just starting out in real estate, who need to build equity (yes I’m talking to you mellenial!). The more work you can take on, the more equity you will build. You can even do the much of the renovation yourself.

I know it looks yummy, but no more $10 avacado toasts! Make your own at home

I know it looks yummy, but no more $10 avacado toasts! Make your own at home

There are other reason why a homeowner might consider using a second suite as an Airbnb instead of traditional renting. It may be because they will use the unit themselves from time to time, or for relatives and friends who are visiting. They won’t be able to use the space if it is rented out through a traditional lease.

This is precisely why it’s ridiculous that some cities will have by-laws which don’t allow you to rent out your second suite on Airbnb, claiming that you are taking a housing unit off the market. This means if you don’t want to rent out your second suite traditionally, it’s sitting vacant. Another silly rule that doesn’t resolve the housing issue, but just makes things worse.

Having said this, be familiar with what the rules are in your city regarding short-term rentals, and follow them. You never want to bank on a single strategy just in case.

Short Term Rentals For Investors Only

Short-term rentals using seconds is of course not only suitable for owner occupiers, but also for investors as well.

Obviously you will need to have systems in place. And really only works well if you’re an active investor and service oriented. Here are a few quick tips if you have a 2-unit home that is being rented separately through Airbnb or a similar site:

  1. Use an electronic keypad for both units. This is easier than a key, and also better for security as you can change the code from time to time.

  2. Acoustics between units is very important. Don’t skimp out on the sound transmission rating between floors.

  3. Don’t go all out with expensive new furniture. People won’t know the difference. Go with Kijiji for furniture, thrift stores for miscellaneous accessories, Ikea for the dishware, and the dollar store for daily amenities (soap, hand towels, etc.)

  4. Go through your basement or garage of stuff you didn’t want to throw away but haven’t used in years.

  5. Find a good cleaner that will also help you with mundane things like grabbing supplies when they are low (toilet paper, soap, etc).

  6. Additionally find a local handyperson just in case of any issues. Task Rabbit may be a good option to find someone if it’s available in your city.

  7. Try your best to align check-out dates between the 2 guests in order to clean both units at the same time (and possibly getting a discount from your cleaner). This means providing incentives or discounts for one of the guests to stay longer to match the dates of check-out.

  8. Remember you’re competing with a hotel, so try to have as many room amenities as they do, but “one-up” them. This means hairdryers, shampoo, and kick-ass Wifi.

  9. A bonus little surprise (e.g. chocolates and sparkling water) can be cheap but goes a long way.

  10. Ensure that the second suite is legal, of course!

If using second suites for short term rental interest you, remember that it’s much more work than traditional renting. The trade-off is usually higher income and not having to commit to a long term tenant.

Give it a try! You got nothing to lose, except maybe some used furniture (which you can sell of course).