Before you buy that vacation property …
While demand for vacation real estate remains high, buying in the country is very different from owning a city home.
With the economy reeling, now might not seem like the best time to think about buying a vacation home. Nonetheless, stacks of Canadians are still anxious to own a recreational property, both as a long-term investment and to enjoy with family and friends, says Royal LePage in its most recent Recreational Property report.
Interest rates have never been lower and bargain hunters are still driving the market, particularly at the lower end. So far this year the busiest areas seem to be those offering more modestly priced properties, such as the Kawarthas in Ontario — but even these are in the $300,000 range.Despite this, most prospective buyers seem willing to do just about anything to get into the market, Royal LePage reports. That includes purchasing a property with friends or relatives, renting it out to make ends meet, making it their primary residence, buying a handyman special, or downsizing their city home in the hopes of building up equity somewhere on the water.
Before you get carried away though, make sure you know exactly what you're buying. You don't want your dream property to end up being something that you really can't afford, don't know how to fix, and don't use often enough.
First, of course, ask yourself if you can really afford a second home — and perhaps a second mortgage payment. And don't forget about the added costs that you take for granted at home — heat, electricity, property taxes, repairs and insurance. And then, of course, there's the rising price of gas.
Aside from what it might do to your overall debt ratio, adding a second mortgage often includes legal costs, higher interest rates and a stricter repayment schedule. Banks typically want a large down payment on cottages, especially if you have a first property, which is why many buyers look at refinancing and putting the two together into one mortgage.
If your house is paid off and you use it as equity to obtain a cottage loan or a secured line of credit, banks will be more interested, perhaps even absorbing some legal or appraisal fees. Ask a mortgage broker for help sorting out your options here. They'll help you with the back story and present it to the appropriate cottage or vacation home lenders.With financing in place, consider where you want to buy. How long a drive are you willing to make. What about traffic patterns? How busy is the area on weekends and holidays? What do you plan to use the property for? Will it be strictly for family or are you going to rent it out?
What features are important? Are you looking for a pastoral view or is sun exposure more important? Lake or ski hill? Privacy or friends for the kids? Noise and size restrictions on boats and personal watercraft? What about hunters, cross-country skiers and others crossing your land?
How about mining rights? In rural Ontario, for instance, many property owners hold only the surface rights and not the mineral rights to their land. Realizing properties were being staked and claimed for potential uranium mining, cottage owners in Frontenac and Lanark counties have been railing against this, prompting the provincial government to introduce potential changes to the Mining Act.
Be sure to get a title survey for the property before you buy. Many cottage roads are owned privately by local associations. Ask who maintains it, whether it's open year round and if there's a legal agreement guaranteeing you access.
Check the actual entrance road as well since it might belong to neighbours who have allowed access in the past but may not be as keen to afford you the same privileges. This applies to island cottages as well, where access for parking a car and launching a boat is doubly important.
Explore the source of the drinking water. If the cottage has a well, is it on higher ground than the sewage system? Has it ever run dry? When was the last potability test for bacteria like E. coli?
After testing water sources and identifying potential problems, then comes the challenge of choosing an appropriate system to treat them, which can be costly. Or you may simply have to bring fresh water with you.What about the lake itself? Thanks to increased vacation use and fertilizers running off into the province's waterways, the Quebec Health Department now has more than 100 lakes on a watch list of bodies of water affected by blue-green algae, which can strip lakes and streams of oxygen. See if there's a limnologist's report on your particular lake's overall water quality.
Finally, don't buy someone else's mistakes. Ensure that the necessary building permits and approvals were obtained for all structures, including docks or boathouses. If you want to renovate or change the outbuildings, don't assume those permits would be granted today. And don't cheat. If you're caught building your porch without the correct papers you'll be fined and probably have to tear it down altogether.
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