Buying a cottage to escape the busy city life is an active part of most Canadian’s aspirations. However, with the high prices & higher resale risk, purchasing a cottage can prove to be less affordable than once thought, with financial specialists going as far as calling it a “lifestyle choice” rather than an investment. On the other hand, if all you can think about is how nice it would be to get away to the cottage every weekend, all summer long, here are a few key things to keep in mind while you’re daydreaming about your toes in the sand.
How Much Can I Afford?
While the idea of a cottage is all hammocks and sunsets, crunching the numbers can be a huge reality check. Financial specialists suggest the “32% Rule” when calculating whether or not a cottage is financially feasible. The rule states that the entire costs of mortgages (for your house and your cottage), fees, interest and maintenance of all properties combined should not take up more than 32% of your annual income in order to remain afloat financially.
Are There Additional Costs?
In Ontario, the average cost of a waterfront cottage with land access is about $400,000, with higher prices in Kawartha & Muskoka. However, the cost of a cottage doesn’t stop at the price tag. Besides the initial money down and monthly mortgage payments, the property taxes, cottage association fees, and upkeep can run well into the tens of thousands over the years.
Additionally, owning a cottage demands year-round maintenance, while it is only inhabited for a few weeks each year. In that same breath, many insurers are reluctant to insure a property that is left vacant most of the year, especially with harsh Canadian winters and the possibility of a pipe bursting without anyone around to take care of it.
Even without factoring in the purchase cost of a cottage, a huge unrealized expense is the furnishing. Having to buy a second set of dishes, appliances, bedding and a second full set of furniture can be a massive expense to consider. Not to mention the cost of cottage toys, such as a boat, jet skis etc.
Priorities, Comprise & Other Options
A big factor when debating the purchase of a cottage or recreational property is priorities and compromise. The additional costs of owning a cottage may have to be weighed against expenses such as the number of children you plan to have, college savings for your children, repayment time on your current mortgage or purchasing a new car. These expenses are all long term, and should be strongly taken into consideration before sinking that extra cash flow into a vacation property.
As an alternative, a great way to enjoy the cottage lifestyle without the financial commitment is to rent, share or fractionalize a cottage property. Often families can rent a furnished cottage for a desired period of time, allowing them the financial freedom for the remaining weeks of the year, while still being able to getaway to the wilderness. More so, time-share agreements often offer additional bonuses to those who sign on for annual terms.
The joint purchase of a cottage is also another compromise to consider. Often families compile their available funds to purchase a cottage to be shared amongst a larger group, costing each person less in ownership costs overall.
Passing on the Purchase
The problem with buying a cottage is its resale and cost of passing it along to the next generation. While it may seem as though thousands of Canadians are looking for a great cottage to purchase, the immense cost deters most from seeking to buy. Therefore, trying to sell a cottage when you decide you no longer wish to own a cottage can be an issue. The ideal market of a cottager is the baby boomer generation, the downside to this fact however, is that most planned for their retirement over a decade ago, leaving the market with far less buyers today. Additionally, those trying to sell are given such a small window of opportunity to appeal to buyers, due to our quick seasonal changes. As real estate experts will confirm, selling a summer cottage in the dead of winter shows little to no results, making finding the right Realtor to work with, half the battle, while also finding the right buyer on the other side of the coin.
If selling the cottage doesn’t appeal to cottage owners, the thought of passing it over to their children might. Whether it be simply passed over or in an inheritance after death, transferring the ownership of a recreational property can cause previous lower mortgage rates to be terminated and reinstated based on current market value, leaving the new owner on the hook for much higher interest rates depending on the market when the transfer occurs.
At the end of the day, owning a cottage is a desirable lifestyle that can give hundreds of memories that last a lifetime. The best way to make your cottage dream into a reality is to plan and save properly with the end goal in mind. To find out more about how feasible a cottage is for you and your family specifically, give me a call at 705-315-0516. I am always here to answer any questions and to help you make safe, sound financial choices when it comes to purchasing any property.