Wouldn’t it be great to get away this weekend? No need to make hotel or AirBNB reservations, but just jump in the car and go?
A growing number of Canadians are buying a cottage or vacation home so they can get away without a full-scale holiday booking. If you’ve been thinking about making the leap, now might be the time to start looking at the market!
Things to consider:
- Location and usage
- Financing a second home
- Maintenance and repairs
- Insurance coverage
- Potential rental income
Location is everything
One of the first things you’ll want to consider when choosing a vacation home is its location. Think about these questions:
- How far do you want to travel to get to your cottage? Remember, driving to Muskoka or Haliburton on a long weekend can add hours and hours to your drive, so you may want to consider closer cottage destinations like along Lake Erie in Norfolk County.
- What amenities are your “must haves”? Do you want to be on a lakefront property with private beach? Does the local town need decent shopping and amenities? Or do you want total seclusion from neighbours and civilization?
- Will you be using this cottage year-round? Will this location be accessible during winter months when roads aren’t always plowed? Is the home insulated and meant to be used even during cold months?
Start researching what you’re looking for in a second home. In Brantford, Brant County and Norfolk County, we are very lucky to be close to so many cottage areas without having to go too far north. Your vacation could just be minutes away!
Financing a Second Home
Mortgage and financing:
If you require financing for your second home, you’ll need to qualify for an additional mortgage. Lenders may have different criteria for second homes, such as higher down payment requirements and potentially higher interest rates. Shop around! A good mortgage broker can help you with all your options.
Down payment:
Typically, lenders require a larger down payment for a second home compared to a primary residence. It’s important to have sufficient funds available for the down payment, which is usually a percentage of the purchase price.
Capital gains:
Keep in mind; because this is your second residence and not your “principle” residence, when you eventually sell the cottage, you may have to pay Capital Gains taxes. This means, any increase in value that the cottage made while you owned it may be taxable. Just something to think about for the future.
Maintenance and Repairs
Second homes, like any property, require ongoing maintenance and repairs. Be honest with yourself! Will you be spending all your “vacation” time doing things like repairing the deck, cutting grass or maintaining its cleanliness?
The key is to strike a balance between wanting a “perfect” cottage that requires just as much work as your current home, and being okay with if the grass gets a little long for a week here and there.
If it’s in your budget to hire someone to do routine upkeep, that might be the way to go! Unexpected expenses will always arise, such as repairs to the structure, systems, or appliances but as long as you can budget for this and be prepared, you won’t be caught off guard.
Insuring your cottage
The type of insurance coverage you require for your property, whether it’s a cottage, cabin, or bunkie, depends on how you use it and how frequently you’ll be there. Since cottages are typically used seasonally, the coverage provided is often more limited. Various policy options are available to cater to your specific needs.
Typically, cottage properties are protected by a Named Perils policy, which safeguards against events such as fire, explosion, smoke, water damage, etc. Alternatively, an All Risks policy can offer coverage for both the building and its contents.
Given that your cottage likely remains unoccupied for a significant portion of the year, insuring it in Canada requires a different approach compared to insuring your primary residence. Customization is necessary to meet the unique insurance needs associated with seasonal properties like this.
Generating rental income
To offset the cost of owning a second home, many cottage-owners like to rent out their property when they aren’t intending on using it. This may be an option but brings with it a few other considerations:
- How comfortable are you with allowing strangers to sleep in your bed, use your appliances and create general wear-and-tear on the home?
- What is the demand in this particular area for cottage rentals?
- Are there any bylaws or regulations in that area that govern short term rental properties?
- What are the tax implications for earning rental income?
Consult with a tax professional to understand the specific tax considerations and potential deductions.
Consider the opportunity cost of tying up your funds in a second property. Evaluate whether the potential benefits and enjoyment of owning a second home outweigh alternative investment opportunities or other financial goals.
It’s crucial to speak with financial advisors, mortgage specialists, and tax professionals to gain a comprehensive understanding of the financial implications specific to your situation. They can provide personalized advice based on your financial goals and circumstances.
And when you’re ready to start shopping for that fun vacation spot, give us a call!
