Buying a cottage with an eye on turning a profit?
By Michelle Warren • Bankrate.com

It's the time of year when thoughts turn longingly to summer, and people start plotting their vacations. For many, cottaging is not only a verb but a fundamental part of the Canadian summer experience. For those who don't want the hassle or expense of owning a cottage, renting is an increasingly popular option. That's good news for the growing number of owners renting their properties on a part-time basis in order to cover taxes and other expenses, but is buying a rental cottage a viable business plan?

"It is if you buy the right cottage in the right place at the right time," says Phil Bayer of Cottage Knowledge. He and his partner Heather Bayer, CEO of CottageLINK Rental Management, moved to northern Ontario from the England to capitalize on the then-burgeoning cottage rental market and now run several related businesses.

What's your incentive?
When buying a vacation property, it's important to establish your goals. Is this a property you'll enjoy a couple of weeks a year and rent part-time or do you plan to rent it full time? Are you looking for profit or to simply cover the mortgage, expenses and/or taxes? Will you maintain the property and run the business, or take on the added expense of having others do it for you?

Knowing the answers to these questions will help determine what you can afford and where you should buy. If you're buying your dream property and simply want to cover costs until you retire and move in full time, then your approach will be quite different from someone who wants to buy and rent a property for a few years, then flip it.

Where's the profit?
The price of cottages has skyrocketed in the past decade, but rents have remained fairly steady. As Bayer points out, a property that cost $125,000 10 years ago would rent for $1,200 to $1,500 a week. Today, that same property would likely cost $500,000, but the rent would still be in the $1,200 to $1,500 range. Cottages tend to rent from about $750 a week for a more rustic place (this still means running water and some form of power) to $4,000 plus a week for luxury properties.

"In general, it's a renter's market. More and more cottages are going on the market," Bayer says. The number one reason is the jump in property taxes, which have climbed 20 percent to 25 percent in most areas, but up to 120 percent in others. "People are putting their cottage up for rent because they have to," he says, adding another third do it because they want to and the final third for investment purposes.

It's important to do the math before you sign on the dotted line. In Heather Bayer's book and CD-ROM, Renting Your Recreational Property for Profit, she includes a rental calculator to help would-be entrepreneurs tally their upfront costs and monthly expenses to figure out how many weeks they'll need to rent their property and at what cost in order to arrive at a net profit. It's a great tool for anyone considering buying a rental property.

A sound investment?
"I don't run into a lot of them," Ted Wiggins of Century 21 United Realty in Peterborough, Ont., says of people who are solely interested in investments. "There are a lot of people who buy vacation properties and rent them out (on the side). More or less, it's about covering costs."

However, with interest rates at record lows and the real estate marketing being among the only investment avenues turning a profit these days, buying a vacation property is by many accounts a smart place to park your money. The average price for a Canadian waterfront cottage or cabin, with land access, jumped 12 percent to $427,589 in 2007, up from $380,507 in 2006, according to a survey by Royal LePage Real Estate Services. Not many investment portfolios could boast such results.

By all accounts, prices will continue to rise, as will demand, with 12 percent of Canadians planning to buy or considering buying a recreational property in the next three years. Prices vary from region to region with British Columbia boasting the highest prices, averaging just above $1 million and Alberta averaging $737,500, followed by $525,000 in Quebec and $469,500 in Ontario. The cheapest place to buy is Newfoundland at $86,500. Keep in mind these are averages -- with the right information and a knowledgeable agent, you can still find a waterfront property in Ontario, for example, for $300,000.