This week it was announced that the very first condo building in Toronto (and in Canada) has just signed on to Airbnb’s Friendly Buildings Program. The agreement will take effect on November 1, 2017.

As the name suggests, the program is about bringing greater legitimacy and structure to short-term Airbnb rentals. Here are two key measures from this particular agreement:

- Building security will now have full transparency with respect to who is hosting and who their guests are at any given time

- Airbnb will share 5% of the building’s revenue with the condominium corporation (hosts will also need to pay $50/month to cover any additional maintenance costs)

What’s compelling about the above is that there’s now a bit of a financial incentive for buildings/boards to support Airbnb rentals. 

At the same time, if something happens, it’ll now be a lot easier to figure out who was responsible and then chargeback any relevant costs. Right now it’s all happening under the radar.

My view on Airbnb is the same as the one I took (publicly on this blog) on Uber: It’s not going away. Many people clearly want it. An entire building just accepted it. So let’s figure out how to make it work better.

One regulation that Toronto is currently exploring and that I think will materialize in some form is a limit on short-term rentals when the unit is not your principal residence.

This is the difference between Airbnb’ing your place when you leave on vacation (or when you have an extra room) and buying a condo strictly as a short-term rental investment.

It’s interesting to see the evolution of companies like Uber and Airbnb. Both would never have been successful if they started out by first asking for permission. 

But now they are mature enough that they are being forced to play nice.

I just discovered an interesting new Seattle-based startup called Loftium. 

The way it works is that they provide down payment assistance (up to $50,000) to prospective homeowners as long as they commit to renting out one of the home’s bedrooms on Airbnb for 12 to 36 months. Loftium is positioning it as a way to help first time buyers get onto the property ladder.

Here’s an example of how the math might work (taken from the New York Times):

The details certainly matter a great deal here but, high level, the homeowner gets $50k upfront, ~$1k per month in shared Airbnb revenue, and the opportunity to buy a home. You just have to be committed to being a host.

And from Loftium’s perspective, they put out $50k at the outset and get back just over $28k a year for 3 years. Assuming these assumptions are correct, that’s a pretty good IRR. 

However, if the home doesn’t generate enough Airbnb income during the agreed upon term, Loftium is on the hook because the homeowner doesn’t owe anything after the “services contract” expires.

Think this will fly? Would you use it?

I’m on an American Airlines flight right now reading the New Yorker. I’m thankful that I brought a few back issues with me because it’s distracting me from the semi-deplorable conditions found in the rear of the plane.

The TV in front of me is broken and they have run out of everything that could be considered edible. Instead of the humble wrap I wanted, I was offered a soggy box of vegetable crackers and hummus. The hummus came in a small toothpaste-like tube that squirted out some kind of watery substance. Not yet sure what it is because I stopped eating it. Thankfully the lady behind me managed to smuggle on a cheeseburger and a basket of onion rings. So I’ve been subsisting on her fumes for the last hour.

In any event, onion rings and watery hummus are not actually what I want to talk about today. Last week’s New Yorker has an essay in it all about the gig economy. One of the sub-stories is about a woman named Caitlin Connors (real name?) who rents a 3 bedroom duplex with a friend in Williamsburg, Brooklyn.

Her and her roommate’s goal is to rent out their place on Airbnb for at least a week each month. Often during this week they’ll take off traveling somewhere (net net they seem to come out ahead this way), but sometimes they’ll just decamp and stay with friends in the city.

One of their criteria when they were initially looking to rent a place was that it had to be “Airbnb-able.” That’s partially what drew them to Williamsburg. They knew that tourists would see the area as trendy and want to stay there. So far that investment thesis has proven true, as their plan allows them to cover their $4,000 per month rent.

The reason I mention all of this — the gig economy, not cheeseburgers — is because I recently attended a panel discussion about the current state of purpose-built rentals in Toronto. At the end of the discussion, somebody in the audience asked about how they’re dealing with Airbnb and each of the panelists responded in exactly the same way. Essentially: we closely monitor our buildings and crack down on it the best we can.

My view about these sorts of things — Airbnb, Uber, and so on — is that they’re not going away so we should try and figure out how to accommodate and work with them. But how exactly should that play out?

Do you get rid of the 6 month minimum lease term that is commonly applied to condo buildings in this city and let people do whatever the hell they want? Do you create rules, so that guests can, for instance, rent a room in a place but not rent an entire apartment? Or do developers need to start creating dedicated Airbnb floors and buildings? (It’s already happening in some cities.)

I believe that there are ways to manage the negative externalities potentially associated with short-term rentals. But I would love to get all of your temperatures on this. Are you a firm yes or no to Airbnb in multi-family buildings, or are you a qualified yes with the right rules and regulations in place? Would you have an issue sharing a wall with an Airbnb suite? 

Let’s talk it out in the comments.