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Is owning a cottage worth it?

Gail Johnson

With school season now in full swing and cottage season over, now's a good time to start thinking about buying your own family cabin for next year. Or is it?

Vancouver real-estate specialist Craig Veroni says that with historically low interest rates, the notion of buying a recreational property is especially attractive these days. However, it's crucial to assess your goals.

"The first thing I'd do with clients considering whether to purchase a cottage or rent is to talk about what their long-term plans are," says the Re/Max Masters realtor. "Maybe they want an investment property in an area that means a great deal to them — maybe it's a place they went as kids and have good memories and they want to share that with their own kids. But is it something that they're going to hold long-term? When it comes to purchasing a cottage, that long-term view needs to be taken."

Canadian recreational property markets saw an upswing in sales this year, according to the recent Re/Max Recreational Property Report. Sales were higher this year than last in 70 per cent of the 33 markets examined. Greater affordability was a key contributing factor, as were rising inventory levels and low interest rates. Downward trending in starting prices was reported in 49 per cent of markets.

Recreational properties under the $400,000 threshold and luxury products topping $1 million saw the most renewed vigor.

Value markets were identified as:

  • Atlantic Canada
  • the Laurentians and Eastern Townships in Quebec
  • more than half of Ontario — including the coveted Muskokas
  • Lake Winnipeg
  • Canmore, Alta.
  • B.C.'s Harrison Lake, Comox Valley and Mt. Washington regions

Aside from establishing goals, there are several factors to take into account when it comes to deciding whether to take the plunge and purchase a summer place or continue renting.

Read the fine print
Interest rates have never been better for property owners, but Vernoi cautions investors to be sure to take a deep dive into the details. "Having said that, rules governing mortgages and lending requirements for recreational properties may be different than those for primary residences. If you see an ad for a 2.9-per cent rate on a five-year term, that doesn't mean you'll get that rate for a vacation home."

Do the math
Let's say you want to buy a $200,000 cabin and need a down payment of 20 per cent. That's $40,000. With a mortgage of $160,000 with a four-per cent rate and 25-year amortization, that works out to monthly payments of $842. Add to that property taxes, utilities, home insurance, and maintenance and you could be looking at another $500 a month at least. That means a carrying cost works out to about $16,000 a year.

By contrast, say you rent a cabin for two weeks at $200 a night; that's $2,800 plus tax.

Granted, the latter example is a lot more do-able, but Veroni notes some of those mortgage payments will be going to the principle (about $4,000 a year in this example), and the cabin could rise in value by a conservative estimate of 3 per cent a year (about $6,000 in net equity). So you could look at it this way: the investment knocks $10,000 off the carrying costs.

"When you factor in the appreciation of the property, it could be quite attractive," he says.

Here's a real-world example of what's out there right now. A 940-square-foot lakefront cabin in Pemberton (about a three-hour drive from Vancouver and a 50-minute trek from Whistler), is currently for sale for $285,000. With a 25-per cent down payment of just over $70,000, a four-per cent rate, a five-year term, an amortization period of 25 years, and property taxes at $83 per month, it works out to a monthly payment of $1,200.

Meanwhile, a 1,400 square foot cabin in the same area can be rented for $200 a night during the week and $225 on weekends in the summer, while smaller rustic cottages start at $90 a night.

Figure out financials
Veroni says it's important to ask the tough questions. "If any surprises come up, are you going to be able to survive? If you need to unload that property quickly, will it sell quickly enough for you or will you have to discount it? Are you going to be stretched?"

On the other hand, owning a cabin means you can rent it out to others to help with the carrying costs. Property managers can do this for you, typically for 10 to 20 per cent of the rent collected. But with the Internet, it's easy for this to be a DIY project.

"You can create a website and put pictures of the property online," Veroni says; sites like Vacation Rental by Owner or even Craigslist or Kijiji are potential places to advertise as well.

What's your style?
Buying a place that you can return to year after year is a terrific way to create cherished family memories. "There's definite intrinsic value in having a cottage," Veroni says. "For kids, it becomes part of their history."

Then again, travelling the world is another great option.

"If a family isn't in the position to come up with 25 per cent down payment for a vacation property and decide instead to go away twice a year, that provides the flexibility of not being tied to a single location," Veroni notes. "Your destinations open up. You can see the world and you can take advantage of places offering great deals."

He adds that some people opt for fractional ownership, in which they purchase a 1/8th or even 1/12th share of a vacation home for a much lower price than buying outright. Keep in mind there are monthly maintenance fees.

A cabin really is a second home
"Owning a cottage is just like owing a house in that there are upkeep costs," Veroni says. It might need painting or a new roof. The lawn and garden will need attention, and the home might need to be winterized every year.

Then there are other factors that can affect recreational properties, particularly those in remote areas. You may have to look into property boundaries, unsurveyed roads, drinking water (which can be poorly maintained if it's a community system), and regulations regarding septic tanks or fields.