Returning to work after a long weekend is always pretty tough, especially if you were lucky enough to spend it relaxing at a cottage. In fact, many of us will return with your own dreams of buying a cottage – which can become reality with a little dedication and planning.
Owning a cottage isn’t like owning a home, however; there are special considerations that need to be made. As well, because it’s often considered an emotional purchase, it’s important to ensure a recreational property is exactly what you want – and a good fit for your financial plan.
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Why Buy Into Cottage Country?
Cottage purchases aren’t just influenced by the desire to get away on a whim. According to a recent study, interest rates play a major role in the decision making process. The survey, which polled Canadians from all across the country, found that 82 per cent were influenced by low interest rates. Of those, 58 per cent said they felt added urgency to buy when interest rates are low. When it came to where they wanted that recreational property to be, 76 per cent said they were more inclined to buy in Canada, rather than somewhere in the U.S.
Crunching The Cottage Numbers
A recreational property ain’t cheap. In fact, they sell for anywhere between $150,000 to over $1 million, depending on where you want to spend your summer days. According to Royal Le Page, the national average is somewhere between $177,500 and $625,500. For argument’s sake, let’s say you find a cottage you like for $200,000. Now what?
Assuming you don’t have $200,000 just lying around, you’ll need help financing your new purchase. As well, when determining loan-to-value ratios, banks tend to look more favourably on cottages that have year-round access and those that are winterized. This is something to keep in mind when you begin searching for the perfect recreational property.
Cottage Financing Dos and Don’ts
Now imagine that you qualify for a second mortgage, but only for 80 per cent of the total asking price. That means that you need to have a $40,000 down payment. While you can borrow against your principal residence, this isn’t totally advisable. Let’s also assume that the interest rate is about four per cent on a mortgage that amortized over 25 years, which would make your monthly payment $842 – or about $10,000 per year. Not bad, right?
Other Costs To Consider
Before you get all excited and run off to buy your recreational home, think about the other costs. You still have to pay property taxes, insurance, and maintenance costs, which can quickly add up to another $5,000 per year. And don’t forget, if you borrowed money from a secured line of credit to pay your down payment, you’ll be paying at least another $2,000 in interest on top of that. It all adds up. You need to think about this because you might find that you don’t use your cottage as much as you’d like to, costing you more than you’re willing to pay.
Are You Willing To Rent It Out?
Consider this: if you only plan on using your cottage for long weekends in the summer, it might be cheaper to rent something out. There is always the option of renting your own cottage out during the period of time it would otherwise be empty. If you choose to rent it out, you can do it yourself or hire a property manager, but expect to pay 10-20 per cent of the rent you collect to that manager. On top of that, the rent you collect is taxable as income – another thing to consider.
5 Tips: Choosing The Perfect Cottage
Still set on snapping up your own lake-side abode? Here are five things you might want to do before heading out on the hunt.
1. Get your finances in order. Talk to a lender about getting pre-approved. It’ll make the cottage-hunting process that much easier.
2. Make your wish list, including both needs and wants. Know where you want to draw the line.
3. If renovations are necessary, be sure to have a contractor on board. You can ask him/her to evaluate the property and its needs beforehand.
4. Choose a real estate professional who knows the area well. They may be able to recommend a property manager if you’re planning on renting your cottage too.
5. Do a LOT of research. Don’t be afraid to ask questions. Owning a cottage is not the same as owning a home. Things to consider include utilities, wildlife issues, road access, water, etc.
Good luck in your search for the perfect recreational home!