Is Buying a Cottage/Vacation Home Right for You?

The COVID-19 pandemic has many Canadians re-evaluating their living situations. The desire for more outdoor space, being closer to nature and more square footage has contributed to a surge in demand for vacation homes. Since more Canadians are working from home, lakefront cottages, cabins in the woods and other rural properties have piqued the interest of many professionals, as they consider investing in space away from the hustle and bustle of the city. While vacation homes offer a number of benefits, they also come with several challenges. Here are a few pros and cons of buying a vacation home you can share with your clients.

Pros

Property values continue to rise 

Buying a vacation home has always been considered a good investment, but indicators have never been stronger that recreational property values will continue to grow. Although the recreational market is generally active in the warmer months, recent trends have proven that the continued frenzy is here to stay, even through the typically slower winter months. The median price for residential non-waterfront property sales in Ontario’s cottage country reached $635,000 at the end of 2021, up 44.8% compared to the previous year. Waterfront properties also saw a 25.7% rise to $1.05 million on average over that same time. In Western Canada, demand has pushed prices of non-waterfront properties up in areas like Canmore by 26% since 2019, and home buyers are paying about 43% more for waterfront properties in Manitoba compared to 2019. 

Lucrative income source

According to vacation rental company Vrbo, almost half of vacation property owners said that income potential was their main motivation for making that investment. As families across Canada explore new ways to create staycations, short-term rentals have grown in popularity. Airbnb hosts report making over $900 per month, depending on the season. In some cases, income from a vacation property may cover a big chunk of mortgage payments or other property management expenses. 

Retirement planning benefits

A second property could initially be used as a rental vacation home that eventually transitions to a full-time retirement residence later on. Buying a rental home allows the owners to build equity into retirement. At that point, your clients can sell their primary residence and put that equity toward the mortgage of the second property. Encourage your clients to discuss with a financial planner how a vacation home can help them build long-term wealth. 

Cons 

Maintenance costs

The first thing to consider about owning a vacation property is the cost of maintaining it. If there are projects or repairs that need to get done, it requires the property owner to either do it themselves or supervise the job. This could involve commuting to the property, and can often entail unexpected costs as well. If frequently being on site isn’t possible, it might mean paying a property manager to maintain it, which can add additional costs to your budget. Additionally, taxes on a second property can be higher than originally expected depending on the location, especially for waterfront properties. 

Managing a second home 

A vacation home is an extremely hands-on investment. If it’s your intention to rent your vacation home, whether short-term or long-term, ensure you have considered the additional responsibility. With short-term rentals, homeowners will have to manage bookings, communicate with guests, and manage the upkeep between stays. Homeowners will also have to prepare for possible damages and liability. 

It can be time-consuming and stressful to manage an additional property. Particularly during a pandemic, it’s important to consider whether owning a second home is worthwhile given the added time, energy and costs required. 

If you are ready to embark on an exciting journey to your dream home, contact us to get your pre-qualification started.