Over the years, many Buyers looking to purchase a recreational property in the southern Georgian Bay region have wanted to acquire something that provides short term rental potential to help offset their ownership costs. The Internet has certainly aided in making short term rentals possible with a variety of real estate and other websites now available to promote and facilitate both short term as well as seasonal rentals during the ski season and summer months.
Rental properties is a subject I receive a lot of questions about not only from people looking to use a property personally and to also rent out but I find there are a growing number of investor Buyers that are looking to buy a property in our area strictly to have as a source of income. Regardless of who the Buyer is or what their intent is, property rentals is becoming an increasingly complex matter with questions that pose no easy or cookie cutter answers. In virtually every instance there are a number of issues that need to be addressed including but not limited to municipal zoning and by-laws, condominium rules and regulations, personal as well as HST taxes etc. some of which require qualified legal and accounting advice.
Buyers need to be aware that residential zoning regulations in many municipalities across the province do not allow short term accommodations. Short term accommodations are defined where the rental period is less than thirty (30) consecutive days. Some condominium corporations also have restrictions in their rules and regulations that may prohibit rentals of this type.
In order to control short term rentals that in some cases were having an adverse affect of some residential areas especially those in close proximity to Blue Mountain Resort, the Municipality of the Blue Mountains passed a Short Term Accommodation By-Law (STA) which required owners to apply for and obtain an STA license if they wish to rent their property out for less than 30 consecutive days. Note, The STA By-Law does not apply to motels, hotels or bed and breakfast establishments. The goal of said By-Law was to implement some control over short term accommodations including such things as parking, garbage, noise and other forms of nuisance that were starting to disrupt residential neighbourhoods. This STA By-Law includes a number of requirements see a 47 page report that must be met in order for a property owner to qualify for an STA license including the following:
- Applicant’s property must be 120 metres away from an already STA licensed property or bed and breakfast.
- The subject property must be connected to both municipal water and sewer services.
- A site plan is required including details as to how requirements for parking, waste collection/removal, fencing, snow removal and other factors will be addressed.
With a number of STA licenses already issued in various locations, meeting the 120 metre distance may be a challenge but there is a way around renting your property out on a short term basis without requiring an STA license. If your rental unit is part of a lease or management program with a company that manages 10 units in one or more buildings on one or more properties, then your unit is exempt from needing an STA license. As of this post, I have a condominium unit listed for sale in the Wintergreen condo complex at Blue Mountain. The owner of unit has the property in a rental program that consists of 10 units hence he does need to have an STA license. The rental management company looks after booking the rentals, the housekeeping and other details for which they charge a fee. Effectively the owner enjoys the benefits of the rental income with little to no work on his end.
In addition to obtaining an STA license if required, many area condominium owners with units close to Blue Mountain Resort have elected to have their units part of the Blue Mountain Village Association (BMVA) In addition to an enrolment fee, BMVA members also pay a quarterly fee to BMVA and should they sell their unit, a fee equal to 1% of the sale price is payable to this Association which can easily be $8 to $10 thousand or more. Properties in the BMVA enjoy reduced property taxes as their properties are taxed at the “residential” versus “commercial” property tax rate.
Example: For a condo in the BMVA with an assessed value of $264,000 the annual property taxes are $2,350.00. If the property was not part of the BMVA that same property if rented out would have an annual tax bill of over $4,800 taxed as a commercial property.
With respect to the BMVA it is important to be aware of the following. Technically it is not the owner that is a member of BMVA rather it is the property itself and once a property becomes part of the Association there is no getting out as membership in the BMVA is registered on title.
In part 2 of this subject I will address the matter of ownership ie: putting a property in a company versus your personal name. While on the surface that may be appealing there are clearly some tax implications. Another issue which has attracted the attention of the Canada Revenue Agency is the matter of rental income and HST as it applies to the sale of a rental property.
As real estate professionals we are not expected or in some cases qualified to address all the issues and or questions that arise when dealing with rental properties and especially short term rentals. In those cases, our mandate and code of ethics requires us to advise you to seek professional legal or accounting advice.
In the meantime, what I have outlined herein and in my next post is meant to inform you of the facts regarding buying a recreational property to use personally as well as to rent thus helping you to make a purchasing decision that is right for your use and or your investment goals.
Stay tuned for more and do not hesitate to Contact Me if you have any questions, firstname.lastname@example.org or 705-443-1037.