What to Know About Buying a Vacation Home

Posted by Justin Havre on Wednesday, November 21st, 2018 at 1:15pm.

Selling Your Vacation HomeA vacation home can be a wonderful thing. You'll have the opportunity to get away and explore somewhere new, and you'll also be able to avoid the high costs of a motel. Especially if you vacation in a very popular area, getting a motel room for a few nights could really add up. With a home in that location you won't have those costs, but you will have other expenses that are important to consider. One of those is the mortgage payment, and when you finance a vacation home it's not quite the same as getting a mortgage on the primary residence where you spend the majority of your time.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Recreational Real Estate Market in Calgary Is on the Upswing

A recent survey polled Canadians from one end of the country to the other to find out their thoughts on recreational property. People that either own or have the intention to purchase a property for recreational use were included in the survey. 

Nationally, this real estate sector is doing well and according to those polled, one of the reasons is due to low interest rates.

Of the people questioned, 82% said that interest rates would have an influence on their buying decision for recreational property. Another 58% said that they felt that it was urgent to purchase this type of property before the interest rates go up.

Even though many Canadians are facing economic and financial uncertainty, Canadians still recognize the value of property that is deemed for recreational purposes according to Royal LePage chief executive and president, Phil Soper. He added that the market for recreational properties has remained resilient and stable unlike the highs and lows that have been seen in many Canadian urban centers.

In Alberta, the average price for a 1000 ft.² three bedroom cottage, with land access on the waterfront, can range anywhere from $110,000 up to $650,000 while the average nationally can range from $177,500 up to $625,500.

The overwhelming demand is for lakefront property. According to the survey, 41% of those polled that had the intention to purchase said that this would be their first choice when it came to recreational property. Second in line was property in the woods or mountains at 17% while a recreational community condominium came in third place at 13%.

Of the people surveyed, 50% believed that prices for recreational properties would increase while 32% thought that they would remain the same.

Do You Want to Own Your Own Vacation Cottage?

Across Canada, people are ready to sacrifice some things in order to own the cottage of their dreams. According to a survey that was run in April for Royal LePage by Leger Marketing, Canadians want to own a recreational property and are looking at buying one within the upcoming five years.

The survey showed that 32% would be willing to alter their spending habits in order to own a cottage while another 22% would be willing to make a purchase along with other family or friends. Of those asked, 25% would consider purchasing a fixer-upper cottage while another 23% would buy a piece of land with the intention to build a cottage on it in the future.

Many Canadians would like to own their own cottage but they need to be able to budget it into their finances first. There are ongoing costs that go along with cottage ownership, just as with home ownership, that can include property taxes, mortgage payments, condo fees, utilities etc.

Some people like the idea of owning a cottage since they'll be able to rent it out to help make the payments. You'll need to make sure, however, that there are no bylaws in the area that restrict the renting of the property in any way. If there are no restrictions in place, renting out the property can be a fantastic way to improve its affordability.

Of those polled, 10% that currently own a cottage said that they would want to rent it out while 83% said that they don't do it. Of the people surveyed that said that they would be interested in purchasing a cottage, 51% said they'd rent the property if they knew the person or if the tenant was a referral. The survey also showed that people were looking for a quiet, 4-season property that would be good for fishing and boating.

The Best Vacation Home Hot Spots in Canada

Are you looking for the hottest spots for purchasing a vacation home right now in Canada? Here are the top places for vacation homes that are the most sought-after areas in Canada.

Banff National Park has been attracting tourists from across Canada and the world for years. Approximately 4,000,000 people visit this site yearly to take in the sheer magnitude of beauty that lies in this area. In the summer, temporary employees flow into the community as well.

All of these visitors need to have somewhere to live and Canmore is only 15 minutes away from the park. There are 12,000 people that live here year-round and 6,000 residents that come here on a part-time basis to live due to its close proximity to Banff. It's also close to Calgary, which makes it the perfect place to live or to purchase an investment vacation home. Townhouses with one bedroom can easily rent for $1200 per month in the Canmore Kananaskis area.

In Banff, 8,300 people call this place their home year-round. Since the park has been listed as a World Heritage Site by UNESCO, it can be more difficult to own rental property there. People that are interested in purchasing a unit to rent out must meet the specifications of a "need to reside" clause. In order to qualify to purchase investment property one of the following specifics must be met:

  • Own a Banff business
  • Have employment in Banff
  • Worked in Banff before retirement for the last 5 years

In Canmore, there are some zoning requirements that you should be aware of if you're interested in purchasing investment real estate in the town. If you buy a property, for example, with residential zoning, you can not rent it out on a short-term basis. This means that it must be rented for at least 28 days. 

If you want to rent out on a shorter term, you'll have to look for a place with zoning for vacation accommodations. If you purchase a property that is zoned as a tourist home you'll be able to offer long-term and short-term accommodations for visitors.

Financial Considerations for Buying a Vacation Home

Few things are more tempting than a vacation home for when real life is starting to get under your skin. But buying a second home—much like selling one—may not be as simple as heading there on the weekends. See how the financials, terms, and responsibilities are different, and how buyers can prepare themselves before they even start looking at what's available on the market.

Mortgages and Financials

A vacation (or second) home is typically defined as a second home, as opposed to a rental home which would qualify as an investment opportunity. (Certain areas of Canada will not even allow rentals.) Second homes can be purchased for as little as 5 percent down (with LMI), while a rental property will require at least 20 percent down.

Buyers of a second home will have a wide variety of potential incentives and benefits that aren't available for rentals. For example, if a buyer is able to put 20 percent down on the home, they can get a conventional mortgage. They also have access to more options when it comes to lenders, with some offering a home equity line of credit in case the owner needs to use their equity for future expenses. A true vacation home cannot be rented out and must be purchased with personal income only.

What About the Interest Rate?

In general, rates for second homes and vacation homes are a little bit higher than the rates on primary homes. That's true across the board with the majority of lenders, because they see a higher level of risk with second homes and a bigger chance that someone might default on their loan. Even if you're a great credit risk, that higher default chance is factored in for everyone who is buying a second home. It's not something you can avoid, but it's a good idea to make sure your credit is as good as possible, so you can get the lowest rate the bank is offering.

Should You Just Pay Cash?

Many buyers pay cash for a second home, and if you're in a position to potentially do that, there are several things to consider. At a glance, cash may seem like a good choice, however it is important to make sure you aren't taking too much money away from emergency funds or places where it may make you more money in the long run. Take a look at where that cash is coming from. If you're taking the cash from an investment, consider the rate of return you're getting and what you'd pay in mortgage interest. You may want to leave your money where it is.

Types of Properties

A vacation home in Canada can either be a Type A or a Type B property, though both require the owner to live at the home at least part of the time. A Type A home is classified as one with central heating, plumbing, running water, and electricity. There's a maximum loan cap of $750,000 in the metro Calgary, Vancouver, and Toronto areas and $600,000 for all other areas. It must have a foundation that's below the frost line, whereas a Type B property can be built on a floating foundation (e.g., on cinder blocks).

Type B properties need running water, but they do not need a heating source. A Type B property usually has a maximum loan amount of $375,000, though this amount may be raised depending on extenuating circumstances. Down payments for Type B properties must come from either a savings or retirement account, existing home equity, or proceeds from a previous Evanston property sale.

Upkeep and Maintenance

Taking care of a home when an owner isn't there requires a lot of coordination and time. If there's a major storm, an owner will need to either have a designated person to care for the property or they'll need to drop their plans to head with the problem. One thing that may help is letting friends and family stay at the home periodically from time to time.

Both types of property can be loaned out to people, so long as they're not being charged rent. However, even this may not be enough to keep the property up to code, especially if renting in a heavily regulated area. There may also be new tax laws introduced in the area as time goes by that an owner may or may not be able to pay for.

What About the Time of the Year?

In some cases, the time you buy is going to matter. Banks sometimes offer specials and promotions for second homes or vacation home buying, and if you can combine that with a time when prices and competition are lower, you can get a good deal on a home you really love in your favorite vacation spot. That's something worth considering, especially when money may be a little bit tight and you're stretching your budget to get a home in a great location. Talk to your bank about rates and promotions, so you can get a good deal on the home you're been dreaming of.

You may also want to consider how much the particular market is heating up during different times of year—buying in summer is often a popular choice in West Calgary, and that may lead to more competition and higher prices.

3 Things You Need to Know before Transforming into a Canadian Snowbird

A lot of Canadians that are heading toward their retirement years have the thought of becoming a Canadian snowbird on their mind. If you are one of them, there are a few things that you should know first. 

While planning on spending the winter down in the warm sunshine may be quite appealing, it will take careful planning to pull it off. Some of the things that you'll have to deal with include healthcare considerations, immigration issues, taxes and other regular preparations that you would make for a long-term trip.

Immigration

If you want to head south to the United States, you'll need a passport and special authorization that's given from the US Immigration Department. Find out more about the up-to-date immigration laws at least 6 months to a year before you plan your travels. You may have to get some paperwork in place before you can take off for the sunny south.

Taking Care Of Your Health Needs

One simple trip to the doctor's office can turn into a big expense and any other larger medical appointments can become a financial nightmare in no time at all. If you do have any concerns regarding your health, it's best to visit a Canadian physician a couple of months prior to your departure. You'll also want to find out the rules regarding your professional coverage for healthcare to make sure that it won't lapse if you spend  extended time outside of the country.

Take A Trip To The Destination First

If you're planning on spending some time in the United States during the winter months, it's always a good idea to visit the destination first on a pleasure trip to make sure that it is an area where you'd like to spend some time. While brochures and pictures on the Internet can certainly look inviting, they cannot adequately paint the picture of the community you'll be living in.

Are You Looking for a Spring Cottage in Calgary?

The big buying season for cottages is and always will be in the spring. This is the time of year that people start to think about their weekends and how nice it would be to go to a cottage for a couple of days of relaxing time, excitement or a combination of both.

It's also the time when people start to think about their cottages and whether they will be using them during the summer or whether it would be best to sell them off. The majority of the listings go up in spring for cottages and plenty of new ones are listed during the summer as well. In the fall and winter, however, there aren't as many Calgary cottage listings since most people aren't buying.

If you keep your eyes on the MLS® listings during these colder months though you just may find something extra special for a great price. Some people sell their cottages during the winter because they need the money and are willing to do a bit of extra negotiating when selling it. Also, there aren't a lot of buyers to compete with during this time so you may end up getting a cottage for a song.

If you're in the market for a cottage in the Calgary area next spring you should hook up with your real estate agent now. Let him know that you'd be interested in hearing about any new listings that may come up.

When you purchase a cottage during the fall or winter you'll have all spring and summer the next year to enjoy it. You won't have to spend half of the season searching for a cottage and can just sit back and start relaxing in it right away. There really isn't any better time to get your hands on your own summer getaway than fall or winter. It's the last thing on most people's minds and a great time to score a deal.

While a vacation home may enjoy some of the same benefits as a primary residence, there are enough differences to make a buyer pause before going through with the final purchase. Talking to a financial advisor or a real estate agent can make it easier to decide if it's a practical choice for you.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

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