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.
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).
“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:
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:
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.
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.”