Figure out level of use before making purchase
Some advice for owners of recreation properties, as well as for people considering making a purchase:
Types of recreation properties available in Canada: Apartment-style suites; Townhomes; Chalets; Recreational vehicle (RV) lots;
Fractional-ownership hotel/ resort-style properties; Islands; Acreages; Cabins; Waterfront properties. Things to consider when choosing a recreation property:
What do you plan to use it for? Will it be strictly for recreation? Are you investing for eventual return on investment, or as a deferred retirement residence?
How often do you plan to use the property? Is it located close enough that you can visit regularly (on weekends) or is it farther away?
What do you want to do with the property when you aren’t occupying it? Are you interested in rental pools, fractional ownership, or both?
Research the locations you wish to consider, and consult with realtors and others who are familiar with the area. Be aware of any zoning or legislation that might have an impact on your goals and budget.
Make a list of your most important questions and take it with you when visiting properties.
From The Insurance Bureau of Canada at www.ibc.ca:
How the vacation property is used and how often it is occupied will dictate which insurance packages are appropriate for you.
How much time do you spend there? Do you use it year-round? Do you rent it out at some point during the year? The answers to these questions are important when you are considering what type of coverage to buy.
Most insurance companies will consider providing insurance for your vacation property only if you insure your primary residence with them as well. You can have your vacation property listed on your home insurance as a secondary or seasonal location, or you can have insurance for the property as a separate, standalone policy.
Vacation property insurance is almost always provided as a “named perils” policy, instead of a comprehensive policy.
Named perils means you have insurance coverage for specific risks, such as fire, explosion or smoke damage.
Coverage for certain risks, such as water damage or vandalism, may be more difficult or expensive to arrange, because of the part-time occupancy.
From RBC Royal Bank Canada at www.rbc.com:
There are three main financing alternatives for purchasing a vacation home:
A conventional mortgage allows you to finance up to 75 per cent of the purchase price of the home, thus requiring a down payment of at least 25 per cent.
An insured mortgage makes it possible to finance up to 95 per cent of the value of a second home. If you happen to already own a cottage that has no debt on it, then you can also refinance that existing property for up to 90 per cent of its value and get an insured mortgage to purchase another vacation home.
A home equity line of credit makes use of the equity built up in your primary residence to let you borrow up to 75 per cent of the value of the home less the debt still owing on it.
You will need to have an up-to-date appraisal done to determine the home’s current value.
From High Country Properties Management Ltd at www. highcountry properties.com:
There are three main ways to rent out your recreational property. If you buy a condominium, it’s likely there will be an onsite rental program.
Simply sign up, make a list of when the property is available for rent and you will receive a cheque, either monthly or quarterly, for revenue less expenses and a management fee.
You can also arrange for the services of an outside property management company that specializes in vacation rentals.
Again, you will need to come up with a schedule of when you want to use your vacation home.
Then, the management company will look after marketing your property, handling reservations and payment, providing linens, cleaning and maintenance, and send you a cheque for rental revenue, less expenses and a management fee, usually about 40 per cent.
You can do it yourself, but first you will need to make sure zoning bylaws allow short-term rentals in your area.
Then, arrange appropriate insurance and keep suitable accounting records. Also, arrange for someone to handle cleaning, emergency repairs, or any check on difficulties that your guests may experience.
Some signs to look for that an area is primed for recreation property growth:
Significant investment, in terms of people buying properties, developers building properties, and governments investing in infrastructure.
Upgrades to transportation that allow improved access from a wider area, such as the establishment of Calgary-to-Comox flights.
Talk to local realtors for their take on the latest trends in their area.
Proximity to other hot spots (such as Kelowna, B.C., or Canmore) can cause a ripple effect where locations farther out (such as Penticton, B.C., or Crowsnest Pass) experience growth.
Many of the same tips that apply to home and property security in the city also apply to recreation properties in the country.
Install timers to turn lights and radios or TVs on and off periodically.
Ask a neighbour (or the property’s private security, if applicable) to check in on the site occasionally. Just as in the city, mowing the grass and shovelling the walk gives properties that lived-in look. The neighbour can also check for property damage or signs of mishaps such as waterline leaks.
Reinforce windows with metal grates, and install sturdy doors. The more work a thief faces to break into a property, the more likely they will give up and choose an easier target.
Turn off water and electricity before leaving a property for an extended period.
Don’t leave valuables in an unattended property. Also avoid leaving items such as liquor, hunting rifles and expensive equipment behind.
If possible, install an alarm system that is either monitored or programmed to notify you in the event of a break-in or other emergency.
Consider joining — or starting — a crime prevention program such as Rural Crime Watch.
Clearly label any possessions left on the property with non-removable stickers.
Inform local police or RCMP when the property will be unattended, and periodically contact them to find out if there have been any security issues near your property.
Some tips for making sure buying a recreation property doesn’t leave you with unexpected sticker shock:
Be aware of closing costs, such as lawyer fees and home inspection fees.
An accountant can help you navigate the taxation implications, both in terms of what taxes you have to pay up front, whether any taxes like GST can be deferred, what taxes are applicable if you rent out a property, and if any rebates/ write-offs are available.
Location and amenities play a role in determining ongoing costs, such as condo/strata fees.
Contact local realtors, mortgage brokers, etc. to find out if an area has unique taxes or other fees that need to be factored into the purchase of the property.