Seeking to purchase or promote a cottage? It could be extra sophisticated than you assume

By
Millicent Wong
-
0
351
Top Stories newsletter logo

  1. Property
  2. Personal finance

Fall is the perfect time to consider buying a vacation home or selling one you already own next spring

Author of the article:

Diana Orlic, Financial Mail Special When considering buying a vacation home, the first thing to consider is whether it makes financial sense or not.When considering buying a vacation home, the first thing to consider is whether it makes financial sense or not. Photo by Getty Images / iStockphoto

To most of us, it sounds like perfect luck owning a waterfront family home. We imagine sitting outside on the dock and enjoying the sunrise with our morning coffee, paddling around in the afternoon or enjoying the sunset with a cold drink. The reality is, these moments come at a price, and are often hard earned after hours of waiting and being on the highway.

This ad hasn’t loaded yet, but your article continues below.

Therefore, I advise clients to carefully examine their financial situation, lifestyle, and expectations for owning a vacation home to ensure that it is a good fit. Demand is currently skyrocketing, but this is largely a consequence of the pandemic and not necessarily sustainable. When advising families looking to buy or sell a recreational property, both financial and practical considerations must be paramount.

The first thing to consider when buying a vacation home is whether or not it makes financial sense, considering all of the various factors that go into owning a vacation home. For example, do you only use it for the family or rent it out when not in use so that it becomes an income generator?

This ad hasn’t loaded yet, but your article continues below.

As with any property, there are additional costs to consider, e.g. B. Property taxes and maintenance, but with the added complication that depending on the location of the cottage it can be more difficult and costly to find a contractor. Last year, customers also suffered from inflationary costs such as lumber due to delivery problems. And there is the cost of gas as well as other costs duplicated from your primary residence such as hydro, cable, internet, heating, home insurance, and consultancy fees. All of these costs add up. Not to mention amenities for the house itself, like life jackets, canoes or kayaks, and possibly a motorboat.

Maintaining a hut can be expensive. Maintaining a hut can be expensive. Photo by Chloe Cushman / National Post Illustration Files

Once we determine that owning a cottage is financially feasible, let’s look at the time frame and some of the softer issues. Every family is different and has its own needs, dynamics and challenges. You should consider the various facets of your family structure to avoid possible family problems. Having a team of advisors such as financial advisors, accountants and lawyers at the table can help keep track of things and focus on the various scenarios and key issues.

This ad hasn’t loaded yet, but your article continues below.

This team can work together to put together the best structure and moderate family gatherings to ensure the difficult conversations take place. For example, would your children want to own the cottage? Will this be cross-generational (is it even possible to determine that from the start)? How do you approach who will inherit the property? Do you make a property balance or sell to the child who has shown the greatest interest? It is important to take emotions out of the decision-making process as much as possible, but I also know that these are spaces of cherished memories and can be an element of nostalgia.

Of course, there are the softer, but equally important questions such as: Are you satisfied with the amount of driving required? Ready to forego a vacation outside Canada for the sake of the cottage? Will you feel like you are giving up the city activities to go to the cottage? You want to make sure that owning a vacation home fits both your budget and your lifestyle.

This ad hasn’t loaded yet, but your article continues below.

Cottage owners who wish to give ownership to their children also need to consider the implications for their overall estate planning beforehand. Whenever something changes in relation to a life event, think about how it will affect your current lifestyle and retirement.

Unlike your home, your vacation home is considered an investment with significant tax complications that require advance planning before selling. There are several ways you can go about this, including designating your vacation home as your primary residence or starting a living trust.

However, the most efficient way to do this is to take out joint life insurance. This is cheaper than individual life insurance and means that couples who own leisure property are paid out the benefit in the second death. At this point, the insurance benefit is paid out to the beneficiary or estate, with cash provided to pay for capital gains.

This ad hasn’t loaded yet, but your article continues below.

  1. The giving of gifts is generally not a chargeable event in Canada.

    How to minimize taxes and maximize the impact of passing your savings on to the next generation

  2. None

    How Boomer Parents Can Decide If To Help Their Children With A Millionaire Mortgage

  3. The seven-acre property, listed for $ 24 million just outside Port Carling, is more of a mansion than a cottage - with two lodges, a swimming pool, home theater, and tennis court - overlooking 200 yards of the lake Muskoka.

    Owning a cottage is becoming a pipe dream even for Canada’s rich people

  4. We are entering an age of unprecedented wealth transfer for parents and children, and difficulties exist for both inheritance and inheritance ones.

    Canadian inheritances could reach $ 1 trillion in the next decade, and both heirs and beneficiaries must be ready

In the best case scenario, a cottage can provide the much-needed comfort and take a break from hectic city life. There are many factors that need to be considered before making a purchase, but the main thing is that owning a recreational property should not ultimately create financial difficulties or family tensions.

If you want to invest the time and money, you want to make sure that it is for your loved one and in the place that suits you best. A great way to do this is to rent in the area in the summer and do a test run with cabin owners. This is a great way to gauge how much work it takes to own a cottage, whether it fits your lifestyle, and whether your children are interested in inheriting a cottage.

Diana Orlic is a portfolio manager and investment advisor at Richardson Wealth.

_____________________________________________________________

For more stories like this, sign up for the FP Investor newsletter.

________________________________________________________________

This ad hasn’t loaded yet, but your article continues below.

By clicking the registration button, you agree to receive the above-mentioned newsletter from Postmedia Network Inc. You can unsubscribe at any time by clicking the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

Comments

Postmedia advocates a lively but civil discussion forum and encourages all readers to share their thoughts on our articles. Comments can take up to an hour to be moderated before they appear on the site. We ask that you keep your comments relevant and respectful. We turned email notifications on – you will now receive an email when you’ve received a reply to your comment, there’s an update on a comment thread you’re following, or when a user follows a comment. Check out our Community Guidelines for more information and details on how to customize your email settings.