Real Estate

Vacation property: emotional buy or sensible investment?

The Globe and Mail

Lisa Windsor remembers almost to the day when she decided she wanted to buy a cottage. It was two summers ago, when her aunt died and her family went to back to the Muskoka cottage country where her aunt had lived year-round.

"The north has always called to me," says Ms. Windsor, a 43-year-old single mother who lives in Guelph, Ont. "But [that summer] I realized that the last time my family - my mother and her sisters and my siblings - were together was when I was a little girl and we went cottaging up there.

"To me, that's why I need a cottage - that place where my family finally gets to regroup."

Ah, the cottage, or cabin, depending on where in Canada you live: It's where family gathers, the sun always seems to shine, the water glistens and good food sizzles on the barbecue. As Ms. Windsor puts it, "The rocks and the water and the trees: That calls to anyone."

Not everyone has an aunt with a cottage. To get that summer hit, many of us rent. No wonder, then, that financial experts say they see a lot of people who decide to buy a cabin right after a particularly dazzling summer rental, whether it's on Lake Winnipeg's Grand Beach or Bras d'Or Lake in Nova Scotia or Shuswap Lake in B.C.

Cottages are "the most emotional asset," says Patricia Lovett-Reid, senior vice-president at TD Waterhouse in Toronto. "And you have to do everything you can to not make buying a cottage be a truly emotional experience."

The decisions you have to make first, before rushing to buy, aren't necessarily financial, she says. They're lifestyle questions.

Do you really have the time to enjoy your cabin or cottage? Do you have flexibility around your work schedule? How far are you willing to drive to get there? With Canada's short summers, how much will you actually use it?

Then there's the cabin itself. Do you want a second home or are you looking for something more rustic? Do you want year-round access? Are you prepared for all the costs - not just the purchase price, but the taxes and upkeep?

There are important financing considerations. Shelley Cleversey, a regional director for Meridian Credit Union, is based in Barrie, gateway to Ontario's lake and summer fun district, and has helped a number of people with cottage financing.

She says it is important for buyers to realize that not all cottages qualify for traditional mortgages. If the cottage of your dreams is similar to your house, with all the amenities of home, then chances are you can get a traditional mortgage, she says. But if you're hoping for "a get-connected with nature, more rustic experience," you may not qualify for a traditional mortgage and will need to pay a higher down payment.

There are other financial implications, as well: Choose to rent out the cottage, and you become a landlord, with all the tax hits that entails.

If you plan to rent out your cottage, Ms. Lovett-Reid says, you should factor that into where you want to buy. "It comes back to location, location, location." You want to buy where people want to rent.

It should also be a convenient location to you, from a landlord's perspective. "People don't think about the toilet backing up or if something else goes wrong - and you're a long distance away, typically," Ms. Lovett-Reid says.

Ms. Cleversey advises that in buying a cottage, you should also ask that most basic financial question: Is it a good investment? Generally speaking, she says, the answer is yes, if you hold onto a property long enough. Demand for recreational properties, especially waterfront properties in a good location, remains strong, she says.

There are other ways to invest in a cottage lifestyle, Ms. Lovett-Reid says. Partial ownership is becoming more common, with people purchasing access to a property for an annual five-week or 10-week period, for example. Also popular is buying a cottage with friends or family members. "It seems to be an accepted norm to do so," Ms. Lovett-Reid says, but adds that it has its pitfalls. "You need to get everything in writing. I've seen a few relationships spoil over it."

Nikki Koski, the author of The Cottage Rules, a guide to sharing recreational properties, also believes in putting everything in writing to avoid conflict. And she really does mean everything: from inheritance issues to when people can use the cabin, to bumping rights to rules for bringing guests. Each list, drawn from her personal experience of sharing a summer family place, is included on a CD-ROM with the book. There's even a pantry checklist, to make sure she and her siblings never run out of soy sauce and nut butter.

"We put everything in writing because we sometimes forget what we decide," she says. "It really works for us.

"It helps us get along."

Ms. Windsor, in Guelph, just started a new manufacturing business in November, so she knows she won't be buying a cottage for another few years. She's working with a financial planner who keeps her on track.

For now, she visits a cottage owned by friends who let her stay for free while she helps clean it up. It's the perfect solution - use of a place in the area in which she eventually hopes to buy.

In the meantime, she yearns for the day that she becomes an owner. "I never knew until August in 2009 why I wanted a cottage. It's about connection, family roots. I need that."

HOW TO RENT OUT YOUR COTTAGE

You want to rent to help defray expenses. Heather Bayer suggests you draw up a marketing strategy and stick to it. "Otherwise you can spend a lot of money advertising here, there and everywhere," says Ms. Bayer, a blogger for cottage owners at cottageblogger.com, and owner of Ontario-based CottageLink Rental Management.

"And make sure you monitor where the inquiries are coming from," she adds. "Then you have your statistics to decide what the best form of advertising is for the following year."

AGENCIES

There are two types: rental and full-service. Rental agencies like Ms. Bayer's will list and market your cottage, handle inquiries, screen renters, book the cottage, manage rental agreements and arrange financial transactions. Full-service agencies also manage the property - maintenance and taking care of rental changeovers.

What you pay

Rental agencies usually charge about 20 per cent of rental income, but can range up to 30 per cent. A full-service agency might charge as much as 40 per cent, Ms. Bayer says.

DIY: COTTAGE WEBSITES

List your cottage on a website. Two of the largest national sites are CottagesinCanada.com and cottagelink.com, but there are hundreds of local and provincial alternatives.

Set up your own website as well; you can provide more pictures and details, and describe what's going on in the area.

What you pay

For websites listings: prices range from $55 to $200 per year. For your own website, Ms. Bayer says expect to pay under $200 a year for a site and hosting through wordpress.org.

FREE!

Put up posters in area supermarkets; let friends and neighbours know; deploy company intranets.

Ms. Bayer says she knows owners "who get a lot of success" from kijiji.ca, a free-listings site. Just be prepared to spend some time; with kijiji, you need to keep updating and have to do careful screening.

But you can't beat the price.