For many Canadians, summertime means one thing: cottage season. And it’s no wonder why. There’s a sweet serenity in leaving the stress of the work week behind and escaping to the lake for the weekend. But while owning a cottage is great, it’s not all barbecues and beverages. In fact, there are quite a few things you need to consider when deciding whether or not to invest in a cottage.
We spoke with Maureen Reid, a mortgage specialist from Meridian, to get some insider tips on what prospective cottage owners should ask themselves before diving head first into cottage ownership.
1. How much will I realistically use the cottage?
This is the first question you should ask yourself. The answer, Maureen says, “depends on your lifestyle and how you’re going to use it.” For many of us, summer is one of the busiest times of year – and Canadian summers are short! Will you have family reunions, sports tournaments or any other big events that will take up your weekends and prevent you from using the cottage as often as you would like? If you can’t set aside enough time to actually put it to good use, you might want to consider investing your money somewhere else.
2. Is it worth all the effort on my end?
You should also determine how much effort you’re willing to put into it. If you want to use your cottage often, you need to take the time to maintain it. Are you willing to deal with wear and tear, lawn maintenance and lugging things in and out? On top of that, are you prepared for all the travel time – including the time and frustration spent in traffic? This often plays a part in finding out how much usage the cottage will get.
3. Should I consider renting out the cottage to supplement my income?
“Absolutely,” Maureen says. “Renting is a great way to support some of the costs associated with a second property.” If you know you’re not going to use your cottage all the time, why not benefit from a little extra cash flow?
Even if you use your cottage a lot at first, over the years, this may change as children grow up and families move away. Renting the property out can be a great option if you end up spending less time there, but still want to keep the cottage in the family. One word of caution? Make sure you know who you’re renting to — you don’t want to come back to any unexpected surprises. Maureen recommends choosing reputable hospitality services such as Airbnb.
4. What costs are there, beyond the initial price tag?
When buying a cottage, you always need to take into account additional costs. A lot of these costs have to do with where the cottage is located. For example, how much gas will it take to get there? Is the cottage accessible by road? If it’s only accessible by water, how much will it cost to purchase a boat? And how much will it cost to keep the boat at the marina? This can really add up.
As for the costs of the cottage itself, Maureen says that “it’s a lot of the same costs that you have at home,” like taxes, heating, electricity, insurance, roof repairs, day-to-day maintenance and even TV and internet (if you so choose).
There are, however, a few cottage-specific costs that tend to get overlooked by prospective cottage owners. For one thing, you need to decide if you’re going to spend the money on winterizing your cottage. There are also environmental risks that you should take into account. Floods, power failures, and severe storms are common in remote areas, and can add on unexpected expenses. Another thing to keep in mind is how often you’ll have guests over. Cottage owners tend to find themselves hosting more gatherings than they do at their houses, and depending on your lifestyle, this may add on extra costs, as well.
5. What location should I choose?
This is an incredibly important question you need to ask yourself before leaping into any property. Shop around. Look at your options. A cottage is as much of an investment as a house, so you’ll want to choose a location where the property is likely to grow in value. Determine what’s happening in different locations. Have certain areas been growing over the years? If so, what kinds of cottages are being built there? Maureen says that “lots of cottage areas are currently being improved and turned into very desirable areas.”
On top of monetary considerations, don’t overlook your own opinions of the location. Do you like the area the cottage is located in? How far is it from town? Does the cottage have to be located on a waterfront? If you don’t do many activities on the water, you could potentially pay less to be inland.
You’ll also want to consider whether you’ll use the cottage in the summer only, or year-round. If you do a lot of winter activities, make sure the location allows for activities like skiing or ice fishing. The location you choose doesn’t only affect your wallet, but your overall enjoyment of it, too.
6. What financing options are available to me?
This depends on what type of cottage you’re looking to purchase:
Type A: Type A cottages can be thought of as having “all the similar amenities that we enjoy in our personal homes,” explains Maureen. Additionally, they tend to be located in more desirable areas, are fully winterized, and are accessible by road. For these types of cottages, you’re eligible to receive financing at a normal mortgage rate. Think of it this way – if you have a Type A cottage, you’re going to get some great rates.
Type B: Type B cottages, as Maureen explains, “have more risk associated with them.” These properties are more rugged, are located in the bush or on an island, are not winterized and don’t have all the amenities that Type A cottages have. Loan rates for Type B cottages tend to hover around five to seven per cent. If you’re interested in buying a Type B cottage property, Maureen suggests trying to lessen this mortgage rate by, if possible, using some of the equity from your principal residence.
7. Overall, will a cottage be a good investment?
“Most cottages do appreciate, so there would be a return on investment,” Maureen says. But as we’ve learned, whether or not it’s a good investment is highly personal. As a prospective cottage owner, you need to determine not only how well a cottage will fit into your budget, but also your lifestyle.
Final words of wisdom? Maureen suggests setting a 10-year plan for yourself and your cottage. “A lot of people think they have to be millionaires to own a cottage, but that’s not true! If they have a well-thought-out plan, it can be a great investment!”