The Cottage Life: What you need to know before buying your dream cottage

Streets Of Toronto X Nicola Wealth

A vacation property can provide a well-deserved weekend retreat, but will you escape the financial consequences of your investment? By thinking like an investor rather than a consumer, you may get the best of both worlds.
As the temperature rises and we approach the summer months, we may be tempted by the listings in cottage country to escape the city, but it appears we are not the only ones. Since the pandemic, increased demand has caused property prices in vacation destinations to rise steeply across the country.

For example, assume there is a beautiful three-bedroom waterfront cottage in Muskoka that has caught your eye for a price of $1.995 million. You feel it is a reasonable price, you already spend several weekends every summer in the area, and you assume the property will appreciate a modest 3 per cent per year over time – great investment, right? If you have convinced yourself this venture will yield family memories as well as mighty financial gains, you may want to reconsider.

There could be plenty of non-financial reasons to purchase the cottage, but we recommend taking the position of an objective investor when assessing how an investment in a second or recreational property fits into your financial plan. Most advisors categorize secondary properties similar to a primary residence, as items of consumption.

When planning any sizeable purchase, Ron Haik, Wealth Advisor and Client Relationship Manager at Nicola Wealth, says there are a number of key considerations one should make ahead of time in order to maximize your finances and your vacation time. Here are the questions you should ask yourself before diving into that lake property:

How are you funding this purchase?

If you are borrowing money to invest in your vacation home, you need to consider the rising interest rate environment we are currently in, and to take that into account for the duration of your mortgage.

What are the hidden expenses?

Maintaining a second property is expensive. Think about what it costs to run one home – property taxes, strata fees, insurance, maintenance, utilities, etc. – then double that. These could account for 2-4 per cent in additional expenses eating into your investment.

How much time will you spend at the cottage?

While working remotely may be reasonable on a part-time basis, more and more organizations are summoning their employees back to the office. Let’s assume you will spend 100 per cent of the peak season at your new cottage (mid-June through mid-September) – this still leaves your new abode empty for three quarters of the year. Oh, you thought you were going to rent out your place in the off-season? Between the cost of hiring a management company to clean and facilitate the rentals, and the reduced rental rate during the shoulder season, where is the value? Also, it’s important to note, any income you collect for rental should be included in your taxable income. At the top marginal tax rate, it leaves less than half in your pocket.

What happens to this property when you’re gone?

Many people have a dream of having a family cottage and hope to see that property get passed down through the generations. But is this just another item in your estate? Will your family always agree on how the summer home is managed? What happens if one member wants to keep it while the rest want to sell?


Haik says it may be better to rent than buy – and not because he doesn’t like real estate as an asset class. Many of his clients have a portion of their total portfolios in real estate, excluding their primary residence. However, there are alternative ways to invest in private real estate, besides taking on a recreational property.

Depending on a client’s personal situation, an alternative could be to invest in a diversified portfolio of commercial real estate properties. Normally reserved for ultra-high-net worth and institutional investors, Nicola Wealth provides access to commercial real estate through their carefully curated real estate portfolios of properties across North America. These portfolios provide diversification beyond the public markets (REITs) and achieve exposure across asset classes (industrial, multi-family residential, retail, office, mixed-use properties) and geographies. The resulting income from investments like these, minus applicable fees, can be used to rent vacation retreats anywhere in the world. Rather than being tied to the same destination year after year, you can diversify your vacation through a variety of one-week vacations.


So, let’s revisit your dream cottage; say you purchase the three-bedroom waterfront abode in cottage country either with cash (lucky you) or through financing with a mortgage. On top of any mortgage payments you may have and/or any stress caused by the maintenance and management of the property, there are normal home ownership costs (mentioned above) adding to your monthly expenses. While the cottage will hopefully appreciate over time, the gains upon disposition will be taxed.

Alternatively, you could instead invest in a portfolio of real estate properties or REITs, with a lower barrier to entry and lesser investment minimum than the price of a cottage. This investment would generate annual cash flow, essentially building your wealth rather than potentially depleting it. Over the years, you could own a diversified real estate portfolio producing after-tax cash flow to book any vacation property in the world – with no second lawn to mow or heating bills to pay!

The great thing about working with a planning-focused wealth advisor is that they can customize the right solution for you based on your goals, objectives, tax rates and risk tolerance while you can focus on building your legacy beyond wealth, and the cottage.

This material contains the current opinions of the author and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. This investment is intended for tax residents of Canada who are accredited investors. Residency restrictions apply. Please read the relevant documentation for additional details and important disclosure information, including terms of redemption and limited liquidity. All investments contain risk and may gain or lose value. Past performance is not indicative of future results. Please speak to your Nicola Wealth advisor for advice based on your unique circumstances. Nicola Wealth is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required securities commissions.

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