May 16, 2016

Buying a Cottage: Reasons to Buy and Not Buy a Recreational Property

Cottage season is here!

Plenty of us wait every year to trek up north, jump in a lake, paddle our brains out, barbecue some steaks, and be one with the great outdoors. While some set up their tents in provincial parks, others want common comforts and four walls (and I don’t blame them).

Cottages offer the amenities of home while being away from the smog and traffic. It’s refreshing, even for a weekend, to be able to wake up with a coffee and walk out onto a deck overlooking the water. (I’m giving myself #FOMO here.)

For those who can afford it, buying a cottage may be on your list. Or maybe you’re a serial cottage renter who’s ready to take the plunge and scoop one up of your own.

Before you do, there are some special conditions you should consider. Recreational property real estate differs from your primary residence, and there are budgeting figures to examine.

Buying a second property

If you’re buying a cottage, I’m going to assume you’ve already purchased a home. Cottages aren’t cheap (though not as expensive as hot-market Vancouver and Toronto real estate) so they aren’t typically going to be for first-time homebuyers.

With that in mind, cottages are second homes, which comes with one primary change: you can’t get mortgage default insurance on a second mortgage, meaning you must include a 20% or greater down payment. Considering that the average Muskoka starter cottage is $400,000 (with most cottages far more expensive than that), that means you’re throwing down at least $80,000.

Cottages are a lot of time and money

It’s easy to think that a cottage is an investment. And it can be. But don’t fool yourself into thinking you can buy the cottage and that’s that.

Cottages require a lot of upkeep and that requires a significant chunk of change. A cottage owner reported in 2014 that it cost about $12,000 a year to keep his cottage (and that doesn’t include the mortgage). If we spend 60 days a year up there, meaning two full months or 20 long weekends, that’s $200 per day.

When we compare that to renting, that $200 a day is cheaper, but it doesn’t include your mortgage payments. So if you’re looking to buy, you have to be able to budget for it, year after year.

Paying off

Cottage rentals are always hot, so you can offset the costs of owning with renting out your cottage to others. There are a few factors that raise your rental price:

• Size of the cottage
• Lakeside on a large lake (small lakes reduce the price, for some reason)
• Proximity to hot spots—towns, beaches, landmarks, attractions

It is possible to earn back most or all of your yearly costs, but don’t expect to bank a noteworthy profit. Remember that renting out the cottage can be time-consuming, as you’ll have to make regular visits to clean and keep tabs on its condition.

And if you’re thinking that you can buy a cottage as an investment property, that’s also not a sure thing. Cottage prices have stayed relatively stable for the past decade. While the skyrocketing prices in Toronto and Vancouver could affect cottage prices in turn, there’s no guarantee, as it hasn’t happened yet. Homeownership, regardless, is still a good investment, but don’t expect a grand appreciation in a few years.

Still, owning a cottage is cool

From a non-financial standpoint, you have to admit that owning a cottage would be amazing. To have a beautiful retreat to escape to every weekend, that’s all yours and has your things and feels like a home away from home—yeah, that sounds great.

Just be sure, if you can afford a cottage and like to get away, that this is the getaway you’ll want for the next number of years. If you want to do a lot of travelling outside the country or to other locations, it might be better to rent a cottage from time to time instead.

However, if you’re someone who camps and cottages every year anyway, a cottage is absolutely for you. Some cottage communities have solid internet access, so if your job allows you to work remotely, you could hunker down at your cottage in May and not leave until October.

Like any home purchase, do your research, draw up a realistic budget, weigh your options, and be sure this is what you want. If you do happen to snatch a little lodge of your own, be sure to throw one on the grill for me (since I’ll be sitting here in the city, full of jealousy).

Unsplash: Sonja Guina