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Cottage ownership can be costly

(Special) – As the cost of recreational property in Canada continues to rise, many Canadians are looking to alternative ways to get a piece of the great outdoors.

The average price of a recreational property in Canada now stands at $467,764. Cottages are not cheap and owning a piece of the Canadian wilderness comes with a lot of responsibility and significant costs that would-be or new owners may not necessarily fully understand or appreciate.

Christine Van Cauwenberghe, vice-president of tax and estate planning with Investors Group, says many Canadians today simply can’t afford to own a second home and now are looking to co-ownership arrangements with other siblings or friends as a way to get into the recreational property market.

On the surface, this might seem like a good idea, but some carefully planning is required to avoid problems and pitfalls that can show up down the road.

“Many siblings don’t get along well and sharing a cottage can result in animosity, rivalry and jealousy,” Van Cauwenberghe said in an interview. “They may have different levels of wealth — some may want to renovate and others not. Some may live nearby and want to use the cottage more extensively while others may be further away and only want it for a week or two a year. Any co-ownership agreement needs to define what it means to share usage and the expenses to maintain and keep up the property.”

After the purchase, there are on-going expenses including property taxes, heat, hydro, insurance, maintenance, repairs, food, vacation toys such as boats and, of course, the cost of travelling to and from the cottage.

Vacation property insurance is not the same as insurance on your primary home. Cottage policies tend to be more expensive due to increased risk. Costs will depend on the location of the property and whether it is accessible all year.

Some cottage owners rent out their cottages for part of the summer to cover costs. You should disclose this to your insurer so they can make sure you’re covered for any damage which might be incurred during the period of rental.

If the cottage is not within a reasonable distance, you may need to hire a maintenance company to check on the cottage when you’re not there. Cottages in remote areas are more susceptible to break-ins and theft and you may want to install a security system, which would add another monthly cost.

A lot of owners also may not take into account the capital gains they may have to pay when they sell the cottage.

If you own two homes you will have to decide which you’re going to designate as your principal residence. Capital appreciation on your principal residence is tax free, but you pay capital gains tax on 50 per cent of the appreciation on your non-principal residence.

The decision can come down to whether the cottage has appreciated in value more in relation to the city home. In some areas of the country waterfront property may have appreciated more than the city, in which case it might make sense to designate the cottage as your principal residence.

Another idea is simply to rent a cottage for a while to see what it’s like, whether it really suits you and your family, whether you like the location and to get a good idea of the costs and work involved.

In the end, cottages can be costly, complicated and involve a lot of time, work and effort, so it probably would be a good idea to consult with a real estate lawyer or estate specialist, or simply rent one for a while, to see what’s involved before taking the leap into ownership, Van Cauwenberghe advises.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Talbot Boggs , The Canadian Press