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Buying a Cottage: 5 Must-Know Tips!

July 30, 2020
5 mins
A couple sits on the edge of a riverbank a short distance away from their vehicle

Many Canadians have realized the dream of owning a cottage. According to Statistics Canada, about 1.2 million of us owned a second home in 2018. Some of these homes are cottages or rental properties.

The pandemic has forced many Canadians to stick close to home when travelling. As a result, cottage sales are on the rise. In Muskoka, about 200 km north of Toronto, cottage sales have soared 73% in the first six months of 2020 compared to the same period last year. And prices jumped 10.5% in June versus May.

Prices across Canada

Last year, real estate firm Re/Max noted that the prices of entry-level properties without a waterfront in British Columbia were $27,000 in 100 Mile House, $135,000 in North Okanagan, $409,000 in Tofino and $425,000 in Kelowna.

In Alberta, entry-level non-waterfront properties were $90,000 in Lake West of Edmonton, $280,000 in Canmore, and $280,000 in Sylvan Lake.

And in Ontario, the prices varied widely. Entry-level properties without a waterfront were $49,000 on Manitoulin Island, $225,000 in Haliburton, $275,000 in Collingwood/Blue Mountain, and $300,000 in Prince Edward County. In most areas, entry-level properties with a waterfront cost much more ($950,000 in Haliburton, for example).

The costs of owning a cottage

Deciding whether or not to buy a cottage will depend on how much you can afford to spend. Current mortgage rates will play a key role in your decision. Also, lenders usually like to see a larger down payment on a second property – as much as 35% in the case of most of the big banks. However, some financial institutions will provide financing with 10% down if the mortgage is default-insured.

If you borrow $200,000, our mortgage payment calculator shows you’ll pay $895 a month with a rate of 2.49% on a mortgage with a 25-year amortization.

But like a regular home, there are also several other costs involved with owning a cottage. First, you’re going to need home insurance. The cost will vary depending on a number of factors, such as the location of the property, the type of heating system and roof it has and how close the property is to a fire station.

There are also the other costs of owning a home. The annual tax bill is based on the value of the property and the municipality’s tax rate. You will also need to pay for utilities, as well as services such as TV or internet.

You’ll need to keep the property maintained, and there will be costs involved for landscaping and repairs.

If you think owning a cottage may be too expensive or don’t expect to be visiting every weekend, you could consider renting out your property when it’s not in use. This can help offset some or all of the costs.

Owning a property that can be used during year-round makes it even more lucrative. In that case, you may want to hire a property management firm to arrange the cleaning and listing of the cottage. While it will be an additional cost, it will save you from having to travel back and forth to the cottage every time you have a new guest. The one thing to remember is that any money earned from renting out the property is considered to be taxable income.

Don’t forget that owning a cottage means a second household that needs to be furnished.

Five tips for choosing the perfect cottage

If you’ve decided you want to get a home away from home, there are five things you should consider before taking the plunge:

  1. Rent in the area first. It always helps to visit the area where you want to buy for a few days. You can check out the local stores and talk to people to get a sense of the community.
  2. Get your finances in order. It would help if you got a mortgage pre-approval. This will help you determine how much you can spend, which will save you a lot of time during the search process. It would be best if you also estimated the costs of buying home insurance, annual maintenance and utility expenses, and the other costs of owning a cottage. Consider where the money for a down payment will come from. Will you be withdrawing from your emergency fund, or do you have some money sitting around in a savings account?
  3. Create a wish list. Do you want a relatively new property or a fixer-upper? Do you want a seasonal property or a place you can use any time of the year? Do you want to live next to the water, or are will you be happier with a place in the woods? Do you want to be close to town or as far away from civilization as possible? There are many things to consider when buying a cottage. It’s best to create a wish list to determine your wants and needs.
  4. Find local experts. While you may know a real estate agent or handyperson near you, you’ll likely need to find similar contact closer to your cottage property. A realtor who lives nearby or who specializes in vacation properties will be more familiar with the area. They may also be able to recommend property management companies if you’re considering renting out your vacation home. If the property you want requires renovations, a local contractor will likely be your best bet since they’ll know where to source materials and be familiar with local building codes.
  5. Do a lot of research. There is much to consider since vacation properties are different than regular homes.

Here are a few things to look into:

  • Is the road to your cottage maintained during the winter months?
  • Is the property linked to the municipal water and sewage system?
  • Are there restrictions on building additions?
  • Is internet access available in the area?
  • Is the property likely to appreciate?

Depending on how you plan to use the property, there may be varying questions you will need to find the answers to, especially if you decide to bring your work with you and need a stable internet connection for those Zoom calls.

Buying a cottage is a big step, and owning one comes with additional responsibility. But if you do your research and find a place that you can enjoy, it can be worth the price.

This post has been updated.

Craig Sebastiano

Craig Sebastiano is an award-winning writer and editor with more than a decade of experience in journalism, marketing, and communications. He’s written about a number of financial topics, including investing, real estate, robo-advisors, mortgages, credit cards, pensions, taxes, insurance, RRSPs, and TFSAs. Craig’s work has appeared in MoneySense, Morningstar, Benefits Canada, Advisor’s Edge, Job Postings, and Ryerson University Magazine. He has completed the Canadian Securities Course and is an avid do-it-yourself investor.

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