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Booming cottage industry attracting investors

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Justin da Rosa | 04 Jul 2016, 08:15 AM Agree 0
Cottages are a hot investment option for Canadians, and they may be one of the few properties overlooked by foreign buyers
  • Broker / Investor | 04 Jul 2016, 10:17 AM Agree 0
    Every time the economy corrects or interest rates rise, there are multitudes of recreational properties dumped on the market at fire-sale prices by over extended owners. Even if you're not over extended yourself, the market value of your recreational property will be massively undermined by those who are.

    My approach is to always invest with the view that the market is about to crash, because the only guarantee is that it will at some point. If you've structured your investment deal such that you're still going to be OK with that investment through and after a crash (typically by securing a massive bargain from a motivated seller), then do the deal. If not, walk away.

    Recreational properties only surge in value for a brief window of time after residential property has been surging for several years, because buyers leverage their city houses to buy cottages, and they crash far faster and fall far more in value than residential property in every downturn, because it's not an essential commodity like primary residential property is.

    When families get worried about paying the bills that keep the roof over their heads and meals on the table, they trim the fat from their household budgets. Rec property is 100% fat, and a mortgage, taxes, and maintenance costs on an unnecessary property are likely the biggest expenses on the books second to the primary home.

    If you want a cottage purely for the enjoyment of a cottage, and can afford it regardless of the economy, sure, go nuts and make that dream come true. Nothing wrong with that at all. (I suggest you buy it during a market crash and save a huge amount of money, but that's just me!) Yes, they can provide a nice respite and change of pace from city life, and there is certainly value in that, if that's what you enjoy... but there is a real danger in thinking of them as financial investments in the sense of building dollars-and-cents wealth. Don't get drawn in by the temporary glamour of owning a cottage for the wrong reasons by justifying it as an "investment" in anything other than your own lifestyle.
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