Our family loves spending time on many of the beautiful B.C. lakes.
The other night around the campfire, a few couples got to talking about what it takes to buy a cabin on a lake or at a ski hill. Cabins provide the opportunity to gather, have great times and build a family legacy.
Before jumping in head-first, here are some considerations:
1) Cabin wish list: From location to long-term use, create a list of what is important to you and your family: o How far are you willing to drive? o Are you looking for something with all of the amenities, or maybe something a bit more rustic? o How often will you be hosting family and friends and potentially need extra space? o Will you use the space year round? o How much maintenance is required? (landscaping, renovations, snow removal, etc.). We recommend trying the lifestyle for at least one or two years before committing a large amount of time and money into buying a cabin.
2) Coming up with the cash: Cabins in B.C. (and across most of Canada) are expensive. The majority of us will require some type of financing and lenders often have stricter rules around cabins. Some properties on even the most desirable lakes do not qualify for financing at all. Generally, you will need to come up with at least a 20 per cent down payment and finance the rest using the available equity in your cabin or home through refinancing or using a home-equity line of credit. If you are selling investments to make the purchase, consider chatting with your advisor and accountant to make a tax-friendly plan. Draft a sample budget to ensure you can afford all 12 months of costs for perhaps only a few months of pleasure. Overhead costs, such as taxes, leases, utilities, strata or condo fees, can easily add over $10,000 per year in costs. Remember to also budget for furniture, beds, linens, dishes, utensils and other sundries. Garage sales, classified ads and online communities can be a great way to save as you outfit your cabin.
3) Considering renting it out: This can be a great way to help pay for your slice of paradise. Keep in mind the most popular weeks you want to be at the cabin are often the most lucrative for renting. Consider leaving the long weekends to the renters and enjoying top dollar revenues. A few tips: o Do your research. Airbnb and VRBO are popular websites for seeing what comparable cabins are renting for. o Get it in writing. A rental agreement covering items such as number of guests, pets, rules, and damage deposits can significantly improve your renting experience. o Consult a professional. There are tax considerations for renting out a cabin and we recommend consulting a tax specialist beforehand. o Check your insurance. Do you need additional or special insurance if you are renting?
4) Plan for the long term: While you can picture yourself in a cabin now, be sure to think ahead three, five and 10 years: o Do your kids/grandkids enjoy being at the lake? o Does your family have busy sport or social schedules that will limit your enjoyment of the recreational property? o Are your kids/grandkids only a few years away from being at an age where independence, friends and part-time jobs take over? o Do you want to pass on your cabin to the next generation? What will this look like? o Could you be in a situation where you need to sell quickly? Real Estate can take months or even years to sell.
Lastly, if you own a cabin that has appreciated significantly in value, it may make sense to designate it as your primary residence and qualify for the capital gains tax exemption. The primary residence exemption allows every family (limit of one per couple since 1982) to designate one residence they wish to claim as their "primary residence" and would be exempt from paying capital gains upon sale. By doing so you could potentially save tens of thousands of dollars. This is a complex strategy with some moving parts and the use of a tax professional is highly recommended.
Hopefully this helps give you something to think about the next time you are sitting around a campfire.
Until next time, Invest Well. Live Well.
This document was prepared by Eric Davis, vice-president, portfolio manager and investment advisor, and Keith Davis, investment advisor, for informational purposes only and is subject to change. The contents of this document are not endorsed by TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc.-Member of the Canadian Investor Protection Fund. All insurance products and services are offered by life licensed advisors of TD Waterhouse Insurance Services Inc., a member of TD Bank Group. For more information, call 250-314-5124 or email Keith.email@example.com.