The Great Getaway

Vacation homes are more in-demand than ever. Here’s what you need to know about buying one. By Matt Olinski

HEN LOCKDOWNS and travel restrictions sent city-dwellers scrambling for cottage rentals last summer, some Toronto residents started thinking about a more long-term investment in lake life. After all, with many of us now permanently working from home, those back-to-back Zoom meetings would be more bearable with sunset drinks on the dock to look forward to at the end of the day.

As things stand right now, it’s a purchase many urbanites are jumping at the chance to make. According to a survey commissioned by RE/MAX in May, more than half of those looking to purchase a recreational property in 2021 were first-time vacation home buyers. Low borrowing rates have sweetened the deal, with 22 percent of buyers saying they have increased their ability to buy.

If you’re fortunate enough to have the means, buying a vacation home is an investment that can pay significant dividends, both financial and emotional—as long as you’re prepared for the financial and practical implications, says Matt Olinski, agent at The Richards Group. “Having the luxury of being able to work from wherever you can means the value of vacation properties has gone up 50 percent or more in some areas,” he says.

With inventory stretched thin and bidding wars commonplace, expect to pay more than half of what the average home sells for in Toronto. In the fall of 2021, the average home in the GTA sold for $1.1 million, while a waterfront property in Prince Edward County was $840,000, according

to a report by RE/MAX. Average prices for waterfront homes in Peterborough and the Kawarthas as well as Niagara-on-the-Lake went up a whopping 70 percent since 2019, both topping $1 million. “Buyers looking for a cottage need to be 100 percent prepared for multiple offers,” says Carley Stenson, a RE/MAX agent in Kawartha Lakes. W “We’ve seen up to 20 offers on waterfront properties, and there are no signs of things slowing down anytime soon.” Still, there are affordable properties to be found if you’re flexible on property type and location— 57 percent of recreational property markets in Canada had listings available under $500,000, according to RE/MAX. In 2021, the average price of a condo in Muskoka, Haliburton, Niagara, Collingwood, Barrie, or Parry Sound was in that range. Non-traditional high-end vacation homes have also seen a pandemic-induced bump in popularity—think farmhouses with five to 10 acres of land, and estate-style spreads. “These buyers want weekend retreats with a lot of space around them, far away from their neighbours,” says Jacqueline Pennington, an agent in Northumberland County around Cobourg and Port Hope. “Prices for these properties have easily doubled to $1.5 million or more.”

Financing the dream The good news for buyers looking to add a second home: low-interest rates can make refinancing your current mortgage more attractive, freeing up cash for a down payment on a vacation property. What’s more, with the rental market going gangbusters in the warmer months, you can recoup significant costs by renting out your property just a few weeks a year.

“Refinancing your mortgage can let you access up to 80 percent of the appraised value of your home, which means you could potentially buy your cottage outright,” says mortgage agent Angie Alvarez with Capital Home Lending.

“Having the luxury of being able to work from wherever you can means the value of vacation properties has gone up 50% or more in some areas.”

If you do seek a mortgage on your vacation home, the same rules apply (mostly) as if you were buying it as a primary residence. “Lenders want to make sure you have the minimum down payment and that you qualify to carry the mortgage with your existing obligations,” says Alvarez. You’ll be expected to put 5 percent down on the first $500,000 and 10 percent for the portion over that amount. For properties worth $1 million or more, the minimum down payment is 20 percent of the purchase price.

There are exceptions to these rules for some types of cottages, however. For “Type B” seasonal properties that aren’t winterized and only have water access—such as an island cottage—lenders typically will want a minimum 10 percent down payment, Alvarez says.

If you’re buying the property exclusively as a source of rental income, you’ll be expected to put 20 percent down. Be aware that some municipalities—like Toronto, Ottawa, Collingwood and Oakville—limit short-term rentals (through sites like Airbnb and VRBO) to properties that are the owners’ principal residence (or qualify as a bed & breakfast). Other towns (such as Huntsville, Prince Edward County and Wasaga Beach) require homeowners to purchase a license if they intend to rent out their properties for 28 days or less.

What to buy and where Some analysts say vacation home prices will level off in 2022 as the travel industry gets back on its feet, more employees head back to the workplace, and city life returns to normal. But cottages have always held pride of place in Canadians’ romantic imaginations, and that isn’t likely to change much, especially for the most desirable properties, says Olinski.

“Most buyers put proximity to Toronto and waterfront access on the top of their wish lists,” he says, and lakefront properties within a two-hour drive of the city have traditionally had the strongest resale values.

What some buyers may not anticipate, however, is that property taxes, insurance, utility and maintenance costs can be higher than in the city and that renovations may cost more in rural areas if contractors have fewer competitors. “I generally recommend buyers set aside 1 to 2 percent of the purchase price for upkeep every year,” Olinski says. Fortunately, rentals can finance a good portion of that, and full-service agencies can make the process smooth if they take care of vetting clients, cleaning, emergency repairs and turnover.

If you’re looking to get into the market, your first call should be to a real estate agent you know and trust. As one of the best-connected agencies in the province, The Richards Group has a wide network of contacts in the top recreational home markets. “I refer a lot of business to local specialists because they understand all the nuances and circumstances of their market,” says Olinski, who will also occasionally co-list with a local agent. “There are a lot of things to consider, and we have access to their expertise. Each community really has its unique lifestyle—it’s a big shift from living in the city.”

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