Should I Buy a Cottage?

If owning a vacation property in cottage country is a dream of yours, you are not alone – many Canadians have goals of purchasing a serene place by the water to enjoy with family during weekends in the summer or to eventually retire to, when it is time to downsize. For those who were already cottage owners, when COVID shut down offices and companies/schools went online, many relocated to their cottages and made it their permanent residence. Others joined the hoards of buyers, seeking a place of their own, taking advantage of low interest rates and increased savings, previously spent on travel. As a result, prices in Canada’s recreational property market rose 16% year-over-year.

For those who are jumping on the bandwagon and contemplating a cottage purchase, here are a few things to consider before making a decision:

STAGE IN LIFE – cottages can be a lot of work to maintain and to customize to your own usage. Are you at the stage in life where you are willing to work on the cottage every time you are there? Does that hinder your ability to spend time with the family? Are your kids old enough to enjoy it? Are your kids at the stage where they would rather stay at home to be with their friends? You have to look at whether juggling your family’s summer plans are going to be able to allow for you to spend quality time at your vacation property, in addition to the time that you will need to invest to make the cottage your own.

FREQUENCY OF USE – How often will you be using the cottage? Is it winterized for all-season use? Will you be renting it out when you are not using it? Who is going to manage that rental? Are you willing to consider co-ownership with other family members or friends? Cottage properties passed onto family members and younger generations have sometimes led to major family feuds and disputes for a variety of reasons so when considering a co-ownership situation with whoever it is, this must be thought out carefully with arrangements/terms/exit strategy agreed upon in advance.

COSTS – besides mortgage costs, you need to consider land transfer tax, the cost to furnish, recreational “toys”, maintenance, utilities, property tax and insurance. Yes, renting the property out when not in your personal use will certainly offset some of these costs, however there is a cost to manage the rental as well. Renovation costs are also inflated – it is not always easy to source a contractor or supplier in certain recreational property regions, and there is an increased cost for materials and time for delivery, if it’s even possible. These are issues you would need to manage, if you did have plans to renovate or update the property.

TAX IMPLICATIONS and INVESTMENT PROPERTY – For most, a recreational property is not a principal residence, so therefore, a sale will trigger capital gains tax payable. After accounting for all of the ongoing expenses, tax on the rental income you’ve potentially collected and the capital gains tax on the sale of the property, financially, there are likely better investments.

LOCATION – like with any type of real estate, location should be one of the most important deciding factors. Often properties right on the water can be significantly more expensive, while properties just a few minutes inland are more affordable. Click this link for a summary of average prices in various recreational property regions across Canada, as well as a forecast for prices in 2021. Also, how far away is the cottage from home? The travel distance is often a deciding factor as to where someone might focus their recreational property search. Location will determine how often you will be using the property, as well as how rentable it would be if you were to decide to do so.

Perhaps after looking into it, you decide that you are more into cottage life than owning a cottage, then renting something for a weekend or week is what you should do. Visit friends’ cottages, try out different locations, and enjoy your relaxing getaway. If in the end, you decide that yes, you would like to own your own, then be sure to work with a local specialist in the area that you are looking in. Only they would be well versed in advising you on location, shoreline rights, sewage systems, and more! If you are looking to purchase a cottage this year – be sure to reach out to let us know and we would be happy to introduce you to fantastic, experienced realtors who can help you find that special place, where you will likely have the fondest memories and great times with friends and family.