Buying a Cottage as an Investment in Ontario

By: Sylvia Smith

Buying a Cottage as an Investment in Ontario



Have you been dreaming about buying a cottage or vacation property in Ontario for some time?  But are you concerned about being able to manage the extra expense?  Buying a cottage as an investment property and offsetting a portion of your annual expenses by renting your cottage out may be a great way to support ongoing cottage expenses.  Plus can be quite lucrative particularly during the pandemic when demand for cottage rentals has dramatically spiked.
However, before you roll up your sleeves and start looking for that dream cottage you should spend a little time thinking about your long-term goals.

The First Step – Define Your Long-term Goals

 cottage ownerhsip, Muskoka, Parry Sound
Before you start looking for that dream cottage - determine why you want to buy a cottage or vacation home.  Here are some reasons why people want a cottage property:
· Escape the hectic city life on weekends and summer vacation.  Do you dream of enjoying the warm sunny days on the lake with family and friends and evenings sitting around the fire pit roasting marshmallows and gazing at the stars?
· Do you want to invest in real estate and diversify your investment portfolio?  Owning a cottage is a great way of earning extra income.  Renting out your cottage to offset and help pay off expenses and even generate extra cash flow – after cottage expenses are paid. Waterfront properties have over the years also experienced great property appreciation and as a result, increased equity.
· Do you eventually plan to retire at the cottage?  Buying a cottage now allows a future retiree to lock in at current prices and earn income when they are not using the cottage.
· Want to invest in real estate but can’t afford the Greater Toronto Prices.  The Greater Toronto Area is expensive and owning real estate in the GTA can be out of reach for many buyers.  But that doesn’t mean you can’t buy real estate.  There are more and more people choosing to rent and buy a vacation property or cottage elsewhere in Ontario.
How do you plan to use your cottage property is a huge decision and one that you need to carefully consider before taking the plunge.   How you plan to use the cottage will impact your financing, insurance, where you decide to buy, and the type of property you should or want to purchase.   Just like buying a home, you should give some thought to how long you plan to own the property, spend some time getting pre-approved so that you have a clear understanding of your financial means and have an understanding of potential returns.

Step 2 - Create a Wish List

Cottage ownership fun
Once you have determined what your cottage or vacation property goals are it is important to have a clear vision of your must-haves and nice to have.  There are many vacation property options to consider.  You will never find a property that checks all your wants but use the list below as a guide to focus your search keeping in mind that this list is for a property you are looking to rent for top rents versus using it strictly for your personal enjoyment.
Must Haves:
·       Waterfront – will always get you more rent but waterfront property is more expensive.
·       Close proximity to grocery stores, liquor stores, etc.
·       Easy water access – for children
·       Lots of sleeping capacity
·       Close to or on a year-round road
·       Parking for cars – min. 3+ cars
·       Good size living space
·       Well or municipal water
·       Winterized – for year-round use
·       Dock – with water deep enough for a boat
·       Privacy from neighboring properties
·       Good internet reception
Good to Haves:
·       Wood fireplace or furnace – not electrical baseboard heating
·       Laundry facilities
·       Dishwasher
·       Minimum 3 bedrooms
·       No weeds
·       Outdoor seating
·       Renovated kitchen and bathroom(s)
·       Sandy beach
·       Charm and character – such as a vaulted ceiling and large windows
·       Amazing water views

 Step 3 – Making Sure the Numbers Work

Cottage investing, canoeing
Purchasing a cottage or a vacation property is not only about the purchase price.  Before you make an offer on a cottage property spend a little time researching and estimating the following possible expenses:
·  Mortgage payments
·  Property taxes
·  Property Insurance –  your vacation or cottage property insurance may be a little more expensive and don’t forget if you are renting your cottage you will need rental coverage. 
·  Utilities – keep in mind that electricity if the property is in low-density areas your hydro bill may be a little more than your city hydro bill.  Don’t forget about other utility costs depending on how your cottage is heated.
·  Internet – internet may be a little more expensive in cottage country than in the city and the internet service may not be as stable as in the city.
·  Annual Maintenance – just like owning a home you will incur maintenance costs so don’t forget to budget for these costs (for example roof, plumbing, well, septic, etc.)
If you are planning to rent your cottage make sure to research what other rentals in the areas are charging for rent.  Once you have a feeling for expenses and income you will feel more confident making an offer on that perfect property.
Ideally, you want the property to carry so it is important that you have some confidence that it will generate the income you need to pay the cottage expenses.  Be conservative with your rents my experience is that you will likely be able to charge more and the property will as a result most likely end up generating income.
The big win is when your cottage property not only pays all expenses but also generates income (cash flow).  Plus you get to enjoy the serenity of spending quality time with your family and friends at your cottage or vacation property without incurring additional costs.  Take your time when it comes to buying a cottage as an investment.  To learn more about buying a cottage, reach out and let's chat.