Personal Finance

What to ask yourself before making a costly commitment
By Gail Bebee | 28/06/13

As summer finally arrives and temperatures sizzle, escaping to the cottage is on the minds of many Canadians. Boating, swimming, sunning on the dock in the great outdoors, partying with friends. What's not to like?

About the Author
Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

If you are cottage-less, scoring an invitation to a relative or friend's cottage is a great way to partake of this tempting lifestyle. You enjoy the benefits without the cost and commitment. However, experiencing cottage life when and where you want invariably means renting or buying a place. Making the right choice between the two is a question of doing your homework.

Start by answering this fundamental question: Why a cottage? Are you searching for a quiet escape from the city's bustle; a place for entertaining family and friends; a four-season home close to the ski slopes; watersports central; a future home after retirement; a vacation spot when the kids are small?

If investment potential is the reason, think again. Much of your net worth may already be in real estate if you own your principal residence. Diversifying into other assets would make more sense. Furthermore, profits from real estate are never certain and you could even lose money. Vacation properties take time to sell, so your cash could be tied up for much longer than you intended.

Next, you will need to scope out the features of your ideal cottage. Checking out the online cottage rental and sales market is a good way to gain an appreciation for the possibilities.

What kind of building do you want? Do you yearn for a rustic cabin with outdoor plumbing and no electricity, or a place with all the modern conveniences? How many bedrooms do you require? How much indoor and outdoor living/dining space do you need? Is a screened porch mandatory? What construction materials are best?

You will also need to settle on the type of property and location. How much land should surround the cottage? Is waterfront with a sandy beach essential? Are you seeking a retreat far from the madding crowd or easily accessible from the city? Are there services such as a grocery store or gas station nearby? Do you want a quiet lake with a motorboat ban? Is there year-round road access?

Renting a cottage is a way to test out cottage life and figure out which features are truly essential and which are nice to have. Weekly rentals are standard, but renting a place for the entire summer will paint a more reliable picture of cottage life. You could realize that renting for a week or two is all the cottage you need.

Research on cottage features and rentals will acquaint you with the real-estate market in cottage country. You may conclude that renting is your only choice because the price of a suitable cottage is beyond your budget.

Once you understand the why and what of your cottage quest, make an honest assessment of how a cottage would fit your lifestyle. Cottage time competes with other aspects of your life. How much time would you really spend there? Would you forego that trip to Europe to spend your vacation at the cottage? Do work commitments or your children's activities keep you in the city most weekends? Are you ready to take on the obligations that cottage ownership involves? Ice-damaged dock, leaky roof, rotting deck; there is always something to tend to.

Before making a decision to buy a cottage, it is critical that you thoroughly analyse the upfront and ongoing costs of owning the sort of cottage property you would want to buy.

The purchase price is just the beginning. Add on the typical costs of a real estate transaction such as legal fees, land-transfer tax and an up-to-date land survey. Lenders consider cottage financing to be higher risk than for urban properties, so financing will be more difficult to secure and the mortgage rate will probably be higher. Besides a "home" inspection, there may be fees for testing the drinking water quality, and inspecting the septic tank system and wood-burning stoves.

If you intend to buy and renovate a cottage, a cost estimate of the proposed work, obtained from a local contractor, is essential before you buy.

With a new cottage, there are usually decorating expenses and furnishings to buy, everything from beds, dishes and tools to pricy water toys. Then, there are the ongoing costs: property taxes, insurance, hydro, telephone, fuel (if there is a heating system) and the inevitable maintenance and repairs.

If renting out the cottage to help cover costs is in your plans, make sure you understand the pros and cons of renting and use a realistic estimate of rental revenue.

After you tally up all the costs, the financial feasibility of cottage ownership should be evident. If your family budget can shoulder the cost and you are committed to the lifestyle, then owning a cottage is the right decision for you.

 

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