Turn your vacation home into a source of income

Whether you call it a cottage, a cabin, a chalet or a bungalow, Canadians love their vacation homes. But are you there as often as you’d like to be? Maybe you’ve got a big trip planned for the summer. Or maybe the kids now have jobs, and you don’t feel like going there as much without them.

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It’s a shame for it to sit empty, especially given the costs of vacation home ownership. Even if you don’t have a mortgage on it, municipal taxes and maintenance costs can be substantial, particularly if you’re not getting much value out of it.

If this is the case, it could be time to consider renting out your vacation home. Depending on the location, even two-bedroom vacation homes can bring in over $2,500 per week.1 Larger vacation homes can fetch several thousands of dollars weekly. And four-season properties, particularly those close to ski hills, can bring in year-round income.

Let’s look at what you need to know before renting out your vacation home. 

Make it rental-ready 

While there’s a large demand for vacation rental properties in Canada, many owners have upped their game over recent years, so you want to rent out your vacation home in top condition to get the best customers at the highest rental prices.

To start off, look around your vacation home with a critical eye. Spending a lot of time in a place can make issues invisible to you, so spend some time making a list of what needs to be done.

If your home needs redecorating, now is the time to do it (and a portion of some of those costs may be deducted from your rental income for tax purposes). You also need to fix any obvious issues, like a ripped screen door or broken blinds. 

Wow your guests

A successful vacation home rental business needs good reviews and repeat business. One way to get both is to put some thought into the interior design of your vacation home. Nobody wants to pay top dollar (or indeed spend much time in) a vacation home that looks like it was last furnished in the 1970s.

Holidaymakers are increasingly seeking out homes with sophisticated interior designs that they’ll really enjoy hanging out in. Websites like Better Homes and Gardens and Homes and Gardens offer great design ideas for vacation homes. Before settling on a design, think about the kind of guests you’re looking to attract and design accordingly, and always try and use materials and furniture that are designed to last. 

Stock up on the essentials 

While some people are happy to have the authentic, rustic vacation home experience, if you’re hoping to charge top dollar, it pays to stock your vacation rental with all the necessities. Here are some of items you should consider for your vacation home to ensure your guests have a great stay:

  • Bed linens
  • Bath and beach towels
  • Plates, cups, glasses
  • Kitchen utensils (including a sharp chef’s knife)
  • Lamps
  • Coffee maker
  • Dish and hand soap
  • Tea and coffee
  • Board games
  • Highchair
  • Hairdryer
  • First aid kit

Some properties don’t include all of these items, even linens and towels, but this can be off-putting for some guests, especially those from overseas (who wants to have to pack sheets and towels in their suitcase?). Increasingly, vacation homes are providing these items, so don’t miss out for the sake of a few bed sheets.  

Make sure you’re covered

We’ve all heard of Airbnb nightmares, where owners came back to their property to find it trashed after a big party. After a string of these stories, Airbnb changed its policies and now provides insurance for its hosts, but there are still gaps in the coverage.

A simple homeowner’s policy won’t cover damage from rental customers; you’d need to take out insurance specifically for a rental property. You may also want to consider rental income coverage, which will compensate you for any lost revenue due to the property becoming damaged and unavailable for rental. Talk to your insurance provider/broker before you start renting out your vacation home, so that you’re fully covered in case of any unpleasant eventualities. 

Be aware of tax consequences

If you rent out your vacation home, you’ll probably have to pay tax on some of the income.

Net rental income (total income minus expenses) is typically taxed at your marginal tax rate (the tax rate you’ll pay on your next dollar of income, after taking into account other income, such as your salary, net business income and investment income).

You can offset your rental income with a reasonable portion of the general expenses of your property, including:

  • Municipal taxes
  • Insurance
  • Maintenance and repair expenses (those that restore the vacation home to its original condition)
  • Utilities
  • Mortgage interest

You can also offset your rental income with the full amount of expenses that are directly related to your vacation property rental business, such as:

  • Advertising
  • Website and other marketing costs
  • Property management fees
  • Cleaning costs related to the rental of the property

You should speak with your advisor or accountant to help you understand the tax issues of renting out your vacation property and the bookkeeping requirements.

Protect your belongings

If you intend to still use your vacation home on a regular basis, in between rentals, you’ll probably want to keep some of your personal belongings there for when you stay. In that case, it pays to either keep them in a locked room that’s out of bounds to rental customers or lock them away in a shed or garage. 

Managing your vacation rental property

It can be difficult to manage a vacation property if you live hours away. Unless you plan on driving to your vacation home every time you have a new rental, it’s well worth considering hiring a vacation rental management company. They’ll do everything from taking photos, advertising, finding guests and taking payment. They can also take care of cleaning and emergency repairs.

They do charge a significant fee, however. Depending on the company, the services they offer and your vacation home’s location, this could be as much as 20%-40% of the rental income.2 While this is a big chunk of your rental income, the company could also help keep your property rented throughout the year, boosting your overall annual income, so it’s worth weighing the pros and cons.

If you decide to manage the property yourself, you could use a lock box for keys and hire a local cleaner to go in to clean and tidy the place after every rental. You should also establish a roster of local contractors you can call on for any necessary repairs or maintenance. These should include:

  • General handyperson
  • Electrician
  • Plumber
  • HVAC technician
  • Gardener
  • Snow removal company

Managing even one rental property can be a lot of work, but if you set up all the help you might need, it can keep more of the rental income in your pocket. 

Name your price

If you choose to work with a management company, they should be able to recommend suitable rental charges for your property, based on its location, length of stay and time of year. If you’re managing the property yourself, see what similar properties in your area are charging, to get a better idea of a realistic rate. While you want to maximize income, you don’t want to price yourself out of the market and have an empty property most of the year.

Many owners charge dynamic pricing, which means raising rates on weekends and for peak demand times, such as summer, ski season and long weekends.

How to market your vacation rental property

Many vacation property owners use full service rental websites such as AirbnbVRBO or Cottages in Canada. These sites either charge an annual subscription, take a percentage of your rental income and/or charge a fee to your renter. For this, they ensure your cottage gets seen, manage bookings, can take deposits and payments, and communicate with guests.

If you prefer, you could set up your own website and advertise your property on platforms such as Instagram, Facebook and Google. You may not get as many eyeballs on your listing as you would on sites like Airbnb, but you’d get to keep more of your rental income.

Either way, you’ll need to put together marketing materials to make your property as appealing as possible. It’s worth investing in some professional photos to really entice guests to stay in your property.

You need to also write a description of the property and its location to grab people’s attention. Go into detail about your vacation property, including specifics of on-site amenities such as:

  • Lakefront/beachfront access
  • Boats, kayaks, canoes
  • Dock
  • Tennis/badminton/volleyball court
  • Swimming pool/hot tub

It’s also worth pointing out local attractions, which can be particularly important for week-long guests who want to get out and explore the area. Include any attractions within an easy drive, such as:

  • Lakes
  • Beaches
  • Mountains
  • Historical buildings
  • Ski hills
  • Hiking/biking/snowmobile trails
  • Kids’ attractions
  • Good restaurants
  • Quaint towns and villages
  • Boat tours

It’s also a good idea to stock your vacation home with brochures for local attractions, so your guests can make the most of their stay. Paying attention to these kinds of details will help get you good reviews and repeat bookings.

Reserve some time to enjoy your vacation property

Don’t forget to book some time for you, your family and friends to enjoy your vacation home. You’ll need to set up a reservation calendar to manage your bookings, so be sure to block out any weeks or weekends that you’d like to be there, in advance. 

How your vacation rental property should fit into your financial plan

Before you jump into renting out your vacation property, set up some time to discuss your plans with your IG Advisor. They’ll be able to look at how any income could fit into your overall financial plan, as well as talking you through the tax implications. If you don’t have an IG Advisor, you can find one here.



2  www.igms.com

Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Consultant.

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