Living the Dream: Is a Vacation Cabin a Sound or Risky Investment?

Spending summer weekends at your cabin may be the dream, but will the reality hurt you financially? Jo Boxwell spoke to Real Estate Agent Mark McVey at Team Powerhouse Realty about what to consider

Team Powerhouse Realty
June 30, 2015

lakefront cabin recreational real estate property

With summer upon us, many BC residents are dreaming about owning a vacation cabin – as evidenced by the surge in recreational property activity. And according to a recent survey, 69 per cent of BC residents would prioritize a cottage or cabin getaway over a city break.

So the dream of owning a vacation home is alive and well in the province – but is the reality a different story? Are vacation homes really a good investment, or will they end up losing you your hard-earned savings? Enter Mark McVey of Team Powerhouse Realty with some great advice for would-be buyers.

Know the Market and Your Financial Situation

“Markets are cyclical; if you’re looking at the peak of a cycle, it’s going to be a riskier time to buy.” Mark says the key to buying recreational property is never to stretch yourself too thin financially. If interest rates rise, you don’t want to be forced into a situation where you have to sell. If prices drop, you need to have the flexibility to be able to wait until the market recovers before you sell.

“When markets are soft, recreational properties are the first to get hit because they’re the first things people want to unload,” Mark says. A weak market can open up some great opportunities for buyers, but you never want to be in a position where you have to sell during that period.

Mortgage Broker Nathan Zurowski with Verico Premium Mortgage Corp. adds that, “While recreational properties are not necessarily riskier investments, from a mortgage point of view they can be a bit trickier to secure financing on.”

Nathan explains that lenders will typically take an interest in the location of the property and the services that property has access to. “How far away from a major centre is the property? Is there year round access? Are there similar properties nearby? If there is a dwelling on the property, does it have electricity and plumbing?”

Based on these factors, you may be required to produce a larger down payment. Nathan says, “Depending on the property, you could be asked to put anywhere from 20-50% of the purchase price down. A lending institution will probably charge a higher interest rate than is available should you be purchasing a standard single family dwelling.”

Think About the Future

Recreational properties are often passed down through families, but even if you don’t intend to pass your property on, you could be using the property yourself for a couple of decades or more before you decide to sell.

Real estate is all about location. When you’ve found a property you like, do some research to find out how future-proof the location is. Will the golf course you’re buying a condo on today be around for another twenty years, or are there already signs of financial difficulty? What happens to the value of your winter cabin if the ski resort disappears? “Waterfront properties have more intrinsic value in this sense because people will always see the value in the location,” Mark explains.

Look into the Past

Some of the potential issues surrounding a recreational property may be based on past decisions or knowledge that could adversely affect your property today.

Very often in rural areas, large properties have been parcelled off over time. This could affect access routes to new properties that were once part of one large holding. Mark advises buyers to make sure that the property they are interested in has its own road access and that the power lines are on their property, not the neighbour’s.

“You have situations where a ‘gentlemen’s agreement’ was made years back to allow a neighbour to tie in off someone else’s power line because it was cheaper than having another one installed. Or, they had an understanding around access to the property because the road crossed into the neighbour’s land.” Without an easement in place, such situations could cost a lot of time and money to resolve if a dispute were to arise between neighbours. 

Regulations around water potability and septic systems have changed dramatically since many recreational properties were built. “There are often stories about someone’s grandfather who built the home and drew water from a nearby lake, but that system may not meet today’s standards. Regulations for septic tank and lagoon systems are now much stricter, and if a buyer is forced to upgrade the system, they will be doing so at considerable expense.”

Some of BC’s lakeside communities have been built on archaeological sites that are now protected. This can prevent any development being made to the property, and trying to obtain permits to make changes can also become a much more lengthy and expensive process.

An Investment in Lifestyle

In popular areas some buyers may see the value in buying a recreational property to rent it out, but very often buyers are more interested in the lifestyle than the financial return.

These properties are second homes; they are places where family and friends meet to spend long weekends together. “People visit the area, see a home for sale with an incredible lake view, fall in love and put in an offer,” Mark says, “but for a safer investment, they need to do their due diligence to make sure they aren’t buying into any major issues that come with that beautiful view.”

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