A cottage is more valuable than you think. Not only does it provide a cozy getaway, but it’s also an investment property.
More than two-thirds of Canadians don’t have an outstanding mortgage on their cottage, finds an Investors Group survey. Further, over 40% say their cottage mortgages are less than half of their home mortgages.
“You can turn it into an income generator that can help you pay off your mortgage more quickly, or even bring in extra dollars that you can reallocate to other investments,” says Aurele Courcelles, director, tax and estate planning at Investors Group.
But before telling clients to rush out and snap up one of these hot investment properties, here are some items to consider.
Property taxes: Regularly reassessing your client’s overall finances throughout the year will help him get a sense of whether the property is still within his financial range.
Renting: Renting it out to non-cottage owners and travelers can be a great way to generate extra income, which can then be reallocated to cover maintenance costs.
Renovations: Consistent maintenance leads to a better quality cottage that has the potential to sell at a higher value.
Fractional ownership*: Consider sharing ownership with other investors. Your client pays an annual fee that covers the fractional ownership and maintenance, and can enjoy the cottage per the fractional ownership agreement.
Since it’s a portion of the cost, he has the option of re-investing the money he’s saved on RRSPs, GICs and other revenue generating investments.
Travel expenses: If he plans to use the cottage often, think about where it’s located. Will he need to fly, or can he drive? If he plans on visiting often, gas and flight costs can quickly add up.
Asset vs. profit: If he plans on holding the cottage for generations, he may be looking for unique retreats that aren’t necessarily real-estate hot spots. But if he’s investing as a revenue generator in the short term, tell him to look for up-and-coming cottage property on the waterfront.
Want to learn about more investment strategies that can help your clients generate income into their golden years? Read on.
*The original version of this article incorrectly equated fractional ownership and timeshares. They are separate concepts. Return to the corrected sentence.