Booming cottage industry attracting investors

Cottages are a hot investment option for Canadians, and they may be one of the few properties overlooked by foreign buyers.

Royal LePage recently released a comprehensive report on the recreational real estate industry in Canada, entitled the 2016 Canadian Recreational Housing Report, which found a growing number of investors are turning to this lucrative segment.

According to the report, 49% of recreational property buyers purchased for the purpose of investing; 64% of advisors polled said potential purchasers purchase for the sake of retirement.

Additionally, low rates are encouraging purchases of recreational properties.

“Canada’s extended low interest rate environment has clearly provided buyers with the confidence they need to invest in a cottage or cabin,” Phil Soper, president and chief executive officer, Royal LePage said. “In contrast to urban home purchase decisions, buying a property on a lakefront or mountainside is much less about interest rates, and more about enhancing lifestyle. Cash savings trump mortgage financing when it comes to how people are acquiring recreational property.”

The survey also found that the recreational property market isn’t of great interest to foreign buyers.

“Almost 95% of respondents surveyed for the report stated that foreign buyers were responsible for 10 % or less of recreational property transactions,” Royal LePage said in the report. “When asked to identify where foreign buyer activity originates from, the most common answer was North America (79%), with the majority (64%) of those who specified a country of origin stating purchasers were Americans.”

To read the entire report, which includes regional analysis, click here.

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  • by Broker / Investor 2016-07-04 10:17:08 AM

    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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