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Have you ever pictured yourself living the good life entertaining guests at your quaint Toronto B&B? We’re not talking about an Airbnb type of investment. We mean a true Bed and Breakfast where you have several rooms, serve a delightful breakfast, and interact on a daily basis with your guests. If this sounds like a dream to you, here we offer a closer look at B&Bs to help you decide if it’s time to quit your day job.

Financing Your B&B Mortgage

Thanks to COVID, lenders are less enthused about offering loans to B&B owners. Lenders today see this as a risk, thanks to the hit the Ontario tourism industry experienced the past two years. Financing considerations include:

  • B&Bs are zoned residential, unless you have more than three rooms to rent.
  • You’ll face higher interest rates if the lender applies commercial criteria when considering the application.
  • The physical condition of the property also comes into play, so you’ll have to find a property that is structurally sound.

If you (or a spouse/partner) intend to keep working, this increases your likelihood of approval because you’ll have a steadier income. As well, buying an existing B&B means lower startup costs compared to buying a residential property you have to convert. But you’ll also pay more for an operational business.

Business Loans for B&Bs

You can also consider a business loan to help finance aspects of your B&B such as high-end bedding, bathroom renovations, comfy furniture for your sitting room, or landscaping for a backyard retreat. There are lenders specializing in Canadian B&B loans such as BDC, SharpShooter Funding and OnDeck.

Converting a House for a B&B

If you’re considering converting a home for a B&B you want at least 3 bedrooms and 3 bathrooms. As well, tourists want a good location. This adds up to a hefty mortgage. For example, if you wanted something in the Annex, we found a 5-bedroom, 3-bath for about $2.9 million. In Runnymede Bloor West Village a 5-bedroom 3 bath in need of some TLC was about $1.9 million Even three bedrooms in fun neighbourhoods like the Danforth were sitting at about $1.3 million. You also have to consider your own accommodations in the home.  

Licenses & Permits for a B&B

You’ll require certain permits and licenses to operate your B&B including a business license, and licenses and permits for serving food and booze. You also have to pass a building and fire code inspection.

Income from a B&B

B&Bs can be quite lucrative. Since you’ll live there you aren’t contending with additional living expenses. The average rate for a private room for the night ranges from about $125 to over $200. If you have three rooms, you can potentially earn from about $10,500 to as much $16,000 a month. However, on average, vacancy rates sit at about 42% so that number comes down to between $6000 to about $9280. Even at the lower end you’re looking at a very respectable income considering you won’t be paying additional living costs. However, you also have to consider your mortgage and expenses. Things can get tight. It wouldn’t be uncommon to barely break even. But you’ll also build equity in the property, so this helps build wealth.

Taxes & B&Bs

There are too many variables to provide thorough info on B&Bs and taxes. However, there are tax implications based on whether you convert your own home, buy a home and convert it or buy an existing B&B. There is then income tax, GST and various income/GST tax credits that would apply.

Lifestyle Owning a Toronto B&B

Perhaps the biggest consideration is the lifestyle. If you love meeting new people and entertaining, this could be an idyllic career for you. As long as you create a lovely retreat where people feel pampered and welcome you can carve out a niche for yourself in the Toronto tourism industry. Good reviews can boost business, so you start to enjoy a higher occupancy rate. However, the positives are balanced by some negatives including:

  • Complaints from guests who are never satisfied
  • Sacrificing income to put up overnight friends
  • Late arrivers (like in the middle of the night)
  • Dietary needs that impact the breakfast aspect of things
  • Very early mornings
  • Cleaning up after guests including dirty sheets and bathrooms

All in all, if you can adjust to the idea of catering to your guests and creating truly memorable experiences, it could be a very fulfilling life.

When a B&B Makes Sense

A B&B makes sense if you have substantial savings or equity in a current home you can access or sell. You need a substantial enough down payment to make your mortgage payments manageable. If you can break even the first year, you have the potential to build a respectable income and a more than modest lifestyle. If things don’t work out as you hoped, you can always sell the property and move on to the next great inspiration. You can also convert it into long-term rental units.

If you’re looking for a team of Toronto realtors to help build equity fast, the Christine Cowern Team’s got you covered. Give us a call at 416.291.7372 or email us at hello@christinecowern.com. We’d love to work with you!

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