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Friends With (Cottage) Benefits

Oct. 17, 2019
4 mins
Couple in modern living room looking at laptop

It’s hard enough for millennials to buy a primary residence, let alone a recreational property. Yet, more than half (56%) of millennials are in the market for a vacation home, according to a recent Re/MAX survey.

Much to their dismay, cottage country prices keep escalating. Most soon realize that a lakefront property or a nice forested cabin is out of their financial reach.

That is, unless they decide to go in together with a friend or two.

But that creates new concerns. There's a lot to consider before rushing into joint vacation property ownership.

The Benefits

Let’s start with the good.

On paper, splitting the cost of a vacation property that you won’t use full-time sounds appealing. The average rec property in Canada now sells for $411,471, a 5% jump from 2018, according to Royal LePage data. That’s a hefty obligation on top of one’s primary residence.

However, splitting the property’s down payment and carrying costs in half or thirds puts a cottage in reach for more young Canadians.

In addition to lowering the purchase cost of the property, annual costs such as utilities, taxes, insurance premiums, maintenance and repair bills are also drastically reduced when split among the owners. And summer is long enough in most parts of the country that there’s enough time to share and enjoy the property during the prime weather months.

But it’s not all sunshine and rainbows (or Muskoka chairs and S'mores, as the case may be).

The Downsides

“Shared ownership resolves many problems—especially the problem of affording a cottage—but it can create others,” wrote Peter Lillico in a Cottage Life column last year.

Here are just a few of the countless issues that commonly arise in cases of joint recreational property ownership:

  • Cost-sharing. “Cost-sharing usually causes the most discord,” Lillico says. The question becomes whether ongoing costs should be split equally or shared in proportion to usage. “If, for instance, the septic system packs it in, one owner may be able to pay his share of the repair bill out of his petty cash, while another may be too strapped to contribute. So, does the cottage go unused for a while or must the strapped owner take out a loan? Or, do the better-off partners pay for everything?”
  • Responsibility-sharing. Bickering over who should be responsible for what—such as opening and closing the cottage and other maintenance-related tasks—can test even the best of friendships.
  • Your credit rating can be at risk. In a joint-ownership situation, all parties listed on the title are equally responsible for making the mortgage payments each month. If one party is unable to make their payment, and the other isn’t able to make up the difference, the lender would report that non-payment on both credit reports. In the worst case, the situation could go as far as foreclosure or power of sale.
  • Your ability to obtain new loans could be impaired. Even though you and the co-owner split the mortgage payments, in the eyes of your lender the loan appears in your credit report as being entirely yours. This can inflate your “debt ratio” on paper and make obtaining future loans—even just a credit card limit increase—much more difficult.
  • What happens when someone wants out? Both parties may buy with the intention of holding onto the property for many years, if not decades. But what happens when one of them needs out, either by choice or necessity?

Tips to Keep Things Amiable

The biggest solution to most of the challenges is an ironclad contract.

“Sit down together and craft a formal cottage sharing agreement while everyone is still friendly,” Lillico advises.

At a minimum, the contract should cover some of the following areas:

  • Costs. How will annual and unexpected costs be divided? Who will be responsible for making sure the various bills are paid?
  • Maintenance. Who will be responsible for regular maintenance work? Would all work be completed by the joint owners? Would the parties agree to share the cost of hiring crews to perform the work? What about major renovations or additions? An agreed-upon budget should be mandatory.
  • Use of the cottage. How will the use of the cottage be allocated between the involved parties? Will all parties have the right to invite guests? Who pays for guest damage?
  • How to solve deadlocks. In the event both parties come to an impassable disagreement, the contract should outline mediation or arbitration by a third party.
  • Exit plan. The contract should include an agreement over what happens when one or both of the parties want to sell their share of the property, or when a party defaults on his/her obligations. Does the remaining owner(s) get first dibs to purchase the other’s share? At what value and who picks and pays for the appraiser?

Mortgage Options for Recreational Properties

Not all cottages are treated equally in the eyes of lenders. The property type and location can influence the type of financing you can get.

Kathy McConnell, a mortgage broker with Mortgage Plus in Peterborough, tells Mortgage Broker magazine that septic, well water (as opposed to lake intake) and year-round road access are among the most important lender considerations. So is four-seasons insulation, a full kitchen and indoor bath.

These attributes would classify it as a Type-A property, which is viewed as a second home and therefore easier to finance through institutional lenders. In such cases, you could also potentially buy with as little as 5 percent down.

Type-B properties, on the other hand, are sometimes boat-access only and have only outhouses or chemical toilets. In other words, more of what you think of when envisioning a classic cottage or cabin, McConnell said. In these cases, big banks would require you to put as much as 35% down, or as little as 10 percent if default insured.

Another option for co-owners is to refinance their primary residences or take out a home equity line of credit to pay for the property. The best HELOC rates are higher than the best mortgage rates, but the payments are interest-only.

Don’t Forget the “Small” Stuff

Sometimes it’s not the big issues that become problems at all, but rather the minor annoyances that come from sharing a common space. Left to boil over, those small issues can be just as likely as contract disputes to ruin your shared cottage experience.

“Roofs and redecorating are easy,” Lillico noted. “It’s leaving perishables in the fridge, not filling the gas tanks, or putting garbage in with the recycling that can be the real sand in the gears.”

The solution?

“At the outset, draw up a set of cottage rules and include them within the sharing agreement,” he wrote. “This [will] clarify expectations and prevent unnecessary headaches later.”

Steve Huebl

Steve Huebl is the operations manager for and a regular contributor to RATESDOTCA.

At the age of 15, Steve founded a neighbourhood newsletter that eventually grew to a circulation of hundreds and was supported by over a dozen local advertisers. He later honed his writing and editing talents at The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. He also worked for several years as a chief English writer of the McGill University Health Centre’s marketing office. Born and raised in Toronto, he now calls Montreal home. When he’s not writing about mortgages, Steve can be found appreciating nature — typically along the shores of the St. Lawrence.

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