Buying a cottage with an eye on turning a profit?
By Michelle Warren • Bankrate.com
Tips for would-be investors
Want a piece of paradise with promise of a profit? Consider this:
- Like any business pursuit, investing in a rental
property requires start-up funds. Obtaining a mortgage for a second
property that's not your primary residence is quite different
from getting a mortgage for a house, which involves putting down
as little as five percent. "A lot of people don't realize the
initial expense," says Wiggins. "You have to have the equity going
in." As a rule of thumb, you'll need a 20 percent down payment,
although you may be able to obtain a higher-interest, high-risk
mortgage with less. He always advises prospective buyers to get
preapproved so as not to waste their time or that of an agent.
- Working with the right agent who knows the area in which you want to buy is fundamental. Local agents understand the waterfront
-- they'll be able to tell you that what looks like a pristine beach in May will resemble a rice field in July.
- The key to a good rental property is a prime waterfront where people can swim and boat. If the water is too weedy, renters won't
bite. "One thing people buying tend to be ignorant of is you can't just tidy up the waterfronts," says Bayer of those who think they can simply
truck in a load of sand and create a beach.
- "One thing people want to be assured of is they own what they think they're buying," says Wiggins of the importance of
understanding shore road allowances. Basically, this means that you own your cottage and the land up to, but not including, the actual strip of
shore or waterfront, which is considered Crown property. Usually this doesn't inhibit your enjoyment of the water; however, it may impede your
ability to build a dock or boathouse. "I would always suggest to whoever is buying a cottage if they do not have a survey they look into getting
title insurance," says Wiggins.
- While most agents start fielding calls in early spring, people who are serious about buying a cottage to rent should have been
doing their homework for several months, if not years. There's often a rush in May as potential buyers have visions of pulling it all together
to rent by summer, but, as Wiggins puts it: "The best time to buy would be June or July when you can see what you're buying."
- As is always the case with real estate, it's all about location. As a rule of thumb, sought-after rentals are within a two-hour
drive to major urban centres or airports. While each individual's idea of cottage life varies, most want to be within a short drive to a village
with shops, as well as a hospital. Generally, island cottages are not attractive rental properties.
- The initial purchase price is only one element of
the costs involved. Most cottages, especially if you got a deal,
require upgrades, whether it's a new roof, deck or interior overhaul
-- renters don't see dated plaid couches as charming, just old.
"People want high-end, good furnishings and all the toys," says
Bayer, adding would-be renovators need to familiarize themselves
with local building codes.
- One cost few people consider is insurance. "Your normal plan does not allow for third-party renters -- a lot of people renting
out don't realize this," says Todd Minor, a broker with Mason Insurance in Welland,
Ont. "One of the most important things to do is contact your insurance company from day one." Many companies refuse to insure rental cottages,
while others have limits on how many days you can rent out a property. "If you buy insurance just for renting out it would be a significant
increase over what you'd normally pay," says Minor.
- Before buying, conduct due diligence and look into local by-laws or pending ordinances restricting short-term rentals. If this
is a bone of contention in an area, you might want to look elsewhere or you may find yourself with a rental property that you aren't allowed to
rent out.
- When calculating the bottom line, be realistic about the number of weeks you'll be able to rent out your property. The last
week in June, all of July and August and the first week in September are safe bets. Some cottages rent successfully year-round, but they have
to have all-season allure.
The recreational property market, especially when it comes to great waterfront cottages, is hot. Potential buyers need to
have information and approvals in order so they can move quickly when they find that perfect place.
Michelle Warren is a freelance writer in Toronto.
|
