Is Your Vacation Property An “Investment?”

Or is it a money-pit?

Many people believe their cottage or Floridian condo is an investment, so let’s start the conversation…


Raise your hand if you’d lke to own a cottage one day?




I think we’d all like to own a cottage one day, but it depends on the circumstances.

If you were offered a cottage for free, you’d take it.  But if you have to work an extra twenty-five hours per week, every week, for the next ten years, maybe some of you would opt out.

For some reason, I’ve always thought I wanted a cottage, but in the last year or so, I’ve realized that it just might not make sense.

Logistically, when am I going to stop working 7-days per week?  When will I have the time and wherewithal to make use of a cottage?  How much do people really use their cottages?

Financially, when will I be able to afford a cottage?  Would I have to scale back the size of my primary residence in Toronto?  How much debt would I take on with the two properties combined?

And finally, what is a cottage from a true “investment” standpoint?

Ask some people, and they’ll tell you a cottage is a downright money pit.

Ask others, and they’ll tell you that the right piece of land, in the right area, will continue to appreciate every year, forever.

I have a friend whose family cottage is up at Pointe Au Baril, surrounded by crown land that will never be built on, and thus the land that is built on is in exceptionally high demand.  This is the kind of cottage that will always appreciate, simply from a supply and demand standpoint.  These properties are kept in the family and handed down each generation, and rarely ever put on the open market.

But that doens’t mean these properties, or any cottages for that matter, come maintenance free.

I’m not just talking about the property taxes and heat/hydro/water.  I’m talking about costs associated with running that property; landscaping a few acres, taking the dock out of the water in the winter, servicing the boats and jet-skis (not to mention the cost), septic tanks service, firewood, garbage – and I don’t even have a cottage!  I’m just thinking about all the things that cottage-owners pay for, from what I’ve seen.

So think about what it costs to run your average cottage.

And don’t think for a moment that 80% of cottage-owners don’t also run out and buy a speed boat, jet-ski, canoe, and other toys.  And how many of them consider their “home away from home” a castle, and put in a pool table, wireless Internet, TV with 300 channels, etc.

There’s no way a $700,000 cottage costs $700,000.

A cottage-buyer might spend $50,000 on toys, an equal amount on furnishings, and then how much on maintenance?

It sounds less and less like an “investment” to me.

Another family friend of mine owns a condominium in Florida, which was purchased in the 1980’s for about $100,000.  The condo reached a value of about $650,00, U.S. funds in the late 1990’s, which with the dollar at $0.65 US, meant the condo was worth $1,000,000 Canadian.  The condo lost half its value – from $650,000 down to $325,000 today, but now that the Canadian dollar is at par, it’s only worth $325,000 US, meaning the loss from the peak is almost $700,000, or 70%.

I’m told that between the taxes, utilities, maintenance, property managing, upgrades, and renovations, close to $200,000 has gone into this condo over the years.  Do the math, and it means that this property isn’t worth much more than all the money that has gone into it.

Perusing MLS, I found a cottage in Port Severn that’s only 90 minutes north of the city, with 4-beds, 3-baths, built in 1999, and in great shape.  See it HERE.

Or if you want more rustic, and you don’t want wireless Internet, HERE is a cottage on its own island, for only $549,000.

But let me use the first one as an example, priced at $779,000.

Let’s say that you’re 40 years old, doing pretty well for yourself, and you’ve got enough for a 35% downpayment.  That’s well more than the 20% minimum required by CMHC for a secondary property, and well above the average that buyers put down on properties.

So you write a cheque for $272,650, and you’re now the proud owner of a cottage.

The monthly mortgage cost is $2,342.05, and you’re paying $28,104 per year in total mortgage payments.

Your property taxes are about $4,000, your utilities, to run this place year-round, are about $10,000, and “George,” who comes by to check on the property while you’re away, to service your boat, to mow the lawn, to pick daisies, and do handle a hundred other mundane tasks, collects about $6,000 per year from you as well.

You’re smart, so you don’t buy your toys outright – you lease them.  So you’re paying $5,000 for your boats and other water toys.

All in, you’re looking at over $53,000 per year for this property, and my question is this: how many days per year are you there?

I’ve talked to a lot of people who own cottages in Muskoka, condos in Florida, ski chalets in Colorado, or quaint cabins in Newfoundland, and most of them will make the same admission: it costs a lot more than it’s worth, but it’s awesome.

So that’s it?

“It’s awesome.”

Those are the exact words spoken by a colleague of mine who has a vacation property that he visits maybe three weeks per year.

So back to the cottage example, where you’re paying $53,000 per year for the property, what would you say to renting a cottage fit for a king, for two full weeks, at $7,000 per week, all-in?  Live like a God for 14-days, and then leave, and never look back!

My family friend told me, “I could stay at the Four Seasons, in a suite normally occupied by some middle-Eastern prince, order room service all day while getting massages, and still pay less than I do each year to run my vacation home.”

But where’s the fun in THAT?

I guess the real question is: What is the cost of ‘pride of ownership?’

I’m sure you sense the irony here, since I’m supposed to be a salesman, and “pride of ownership” is something I talk about with my own buyer-clients.  But maybe I feel that a secondary property is different.

How much use do you need to get out of a vacation property for it to be worthwhile?

What percentage of your net worth are you willing to “throw away” just so you can own a property?

Look, consumers spend their money on a multitude of different things.  A banker might lease a Ferrari for $7,000 per month, and blow $84,000 per year on the car, when he could have bought an Audi or Lexus for $60,000.  I understand that we’re making choices on how to spend our money, and that every time we spend $120 on a nice dinner on a Saturday night instead of eating dollar-store oatmeal, we’re splurging, and spending money on something we don’t necessarily “need.”

But of the two burning questions I just asked above, I keep coming back to the first one: “How much use do you need to get out of a vacation property for it to be worthwhile?”

Personally, if I weren’t going up to a cottage three weekends per month, from May to September, I’d have a hard time justifying the cost.

In the example above, with the $779,000 cottage, that took $272,650 to purchase (with 35% down), which could take the average person two decades to save, if at all possible.  So what kind of position must you be in with respect to your primary residence, in order to spend $272K on a cottage?  Must you own your $900,000 house in CASH in order to go buy this cottage?  Or are people willing to spread themselves thinner?

If you had a $500,000 mortgage on your $1,000,000 house, and you had $272,650 in the bank, would you:
a) pay down a little more than half what’s owing on your mortgage
b) go out and buy a $779,000 cottage with 35% down

Play around with the numbers until it makes sense to you.  Move them up or down until you would answer both a), and then b).

Would you insist on owning $1,000,000 of that $1,000,000 house before putting money down on a vacation property?

Or would you run out and buy a cottage with the minimum 20% down, and stare a $3,000 monthly mortgage in the face?

Every property-owner has a different mentality, and your attitudes can change over time.

In the past 3-4 years, my outlook has become extremely conservative.

I ran into a guy at a wedding that I went to high school with, who is now a financial advisor, and he told me, “My clients made an average of 33% on their portfolios last year.”  Well, that alone was enough to tell me I didn’t want to go near this guy.  Hey, 33% is a great return for one year, but it’s not sustainable, and it tells me that there’s an equally good chance that his clients lose 33% next year.

I’ll take 6-8%, every year, for the rest of my life.  In a heartbeat.  Ask the folks at OTPP and CPP what they think.  But now I’m really getting off topic…

I’m just one person, with one opinion, but I probably wouldn’t buy a vacation property until I owned 100% of my primary residence.  Had you asked me this question three years ago, my answer might have been different.

And even if I did own 100% of my primary residence, what if I wanted to upgrade?  Something twice the cost?  Then I’d only own 50% of my primary residence, and any money I come into, that could have paid down a mortgage on a vacation property, should probably then go toward paying the mortgage on my primary residence.

If we were all independently wealthy, this conversation would be moot.  Everybody reading this blog, right now, can think of “that guy,” or “what’s her name,” whose parents are loaded, and who never has to work a day in his/her life, and can run out and buy a million-dollar cottage today.

But for the rest of us, the idea of a vacation property is nice to think about, but just might end up being an anti-investment.

What’s the value of a vacation home in Scottsdale, Arizona today, compared to eight years ago?

Yeah….thought so…


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  1. Krupo says:

    As an aside, I was amused to see the $549k island cottage (which I would love to have), listed with a “walkscore” of 30. Come on MLS, seriously???

  2. jeff316 says:

    From my limited experience I think recreational property ownership works best in three situations – either the place was handed down to you, or it was so affordable/manageable that it never becomes much of an inconvenience, or if you and/or your spouse has the ability to spend a significant amount of time at the property.

    I grew up without a cottage or cottage connections – unusual for where I grew up (I guess it’s the result of being a slightly ethnic family in a mangiacake burb) so when I married into a family in which my inlaws live on a rural property I thought “score!”

    So I’ve experienced the desire for a place and the benefits of having a rural getaway available. It is nice but … not as “but it’s awesome!” as I expected. The plan on their end is to keep it in the family as long as possible…but as life gets more complicated, and kids come online, the thought of driving 7-8 hours roundtrip just to do more house/yard work becomes less enticing. And I start to think more like Geoff.

    A former teacher of mine was also married to a fellow teacher. These two worked every extra March break, summer school, tutoring, even an Xmas stint at the mall when I was young. The joke was that we all thought they had marital problems and couldn’t stand each other. Turns out they saved all that money for a cottage and now spend the summer and Xmas up on Manitoulin. No less than 6 weeks a year, sometimes up to 10. They never go for March break – not worth it – and recognize that, for them, it’s only viable because they can spend so much time there.

  3. Stevie W. says:

    I’m reminded of a quote from Warren Buffett, that went something like this:
    “I don’t need a boat, I need a friend WITH a boat.”
    Think this applies equally to a cottage. If it works for Warren, think it works for me!

  4. Potato says:

    I’m not a world traveler, nor is my family, so having a consistent place to go is a nice perk. Indeed, before my dad bought the cottage we’d return to the same rental cottage year after year, with no desire to see what else the world had to offer. It was a pricey choice, almost half the cost of the house in Toronto after all the renos were included. Now though it’s worth even more than the place in the city, which is kind of nuts. My parents wouldn’t buy it today if they were starting all over, for many of the same reasons listed. Instead of working out to a few thousand per week of actual occupancy, it would be tens of thousands today.

    The Toronto market did a bit better than double since my parents bought the cottage, while the cottage market has quadrupled. There’s a hidden volatility there though: if and when there is a market correction, the recreational market will be hit so much harder than the urban one. On top of the cost of a cottage these days, could you imagine being hundreds of thousands of dollars underwater in a few years?

    I have no plans on buying a cottage, but if I did I could never imagine buying it unless I could do so in cash — I might mortgage it and keep the money invested, but I’d need that cushion under me of being able to. It’s adding way too much risk for a far too expensive vacation destination.

    Now Dave, it’s just one small step to join us on the dark side by asking that question about the cost of “pride of ownership” in Toronto too, and whether it’s worth it…

    1. @ Potato

      I knew somebody would ask that! 🙂

  5. Geoff says:

    I take a different approach to this, one that doesn’t take into account the math. I would just rather rent a different vacation home each year, in a different place each year, than have to keep going back to the same place each year. Renting vacation homes is easier and more fun.

    1. EdenRam says:

      I too prefer the idea of truly getting away and experiencing something different each time. My family immigrated to Canada. I didn’t grow up longing to go “up north” as many other people seemed to. I can understand the appeal, once you already have a cottage, to keep it in the family and pass down the traditions to the next generation. With both parents working and kids who want to hang out with their friends, how feasible is it to make that drive every single weekend in the summer? For those who do it, good on ya. I couldn’t thus I do not aspire to own a vacation property in the future.

  6. JG says:

    I think all the comments are missing the biggest point and reason;

    It’s Awesome!!!

    That there makes it all worth while.

    1. EdenRam says:

      I can’t help but wonder if “It’s Awesome” to insert your cottage ownership into conversation in order to bask in the envy of your friends and business associates, or “It’s Awesome” because despite the cost of running the cottage, any time spent up there with family and friends is priceless to the owner? I’m not being snarky here. People have their own reasons for making the purchasing decisions they do. Even the example mentioned by another commenter about the money to be made by renting out the cottage. One still needs to set up the cottage to make it attractive. I could rent a basic cottage but do I want to twiddle my thumbs and play Crazy 8’s on the picnic table out back or do I want the option of spending outdoors time on a boat or jet-ski.

  7. Floom says:

    I think Kyle be on crack (did you get it from the Mayer?). He’s comparing 12 mths of rent on a maintenance-free condo to “14-16 weeks” for a cottage and not discussing all the associated costs?! Not saying that there’s not money to be made but with babyboomers getting older and a wall of cottage supply hitting a market with fewer buyers – I wouldn’t bet on/compare “investing” in a waterfront cottage vs. a condo.

    BUT, I will say this – 25 years ago, my parents bought a 10 acre remote piece of land on the water for $25k (it was winter at the time). They built a 2,500 sf cottage for about $200,000.00 over the next 10 years (yeah, pretty slow). There’s never been a mortgage on it and we did most of the maintenance ourselves (until the ‘rents got too old in the last couple of years). They retired there and are now looking to sell it for $2-2.25MM, capital-gains tax free. For all the work, it’s been the absolute greatest investment of their lives. Way better than the single family home. BUT, those days are done.

    1. Jeremy says:

      If it’s not your parents principle residence than they are going to have to pay a tax on the capital gains.

    2. Kyle says:

      Actually i own a cottage that i occasionally rent out. So unlike your completely unsupported assertion – “wall of cottage supply hitting the market with few buyers”, i have plenty of data to back it up.

      The “maintenance-free condo” that you speak of, comes with a maintenance fee that in many Toronto buildings is MORE than maintenance cost on a basic cottage, on a per sq ft basis. An average condo with the same square footage as my cottage will have a maintence fee of somewhere between 7000 – 8000 per year. If i put that much into my cottage fund every year, i’d have a pretty hefty reserve.

  8. Frosty Johansen says:

    Excellent piece, David.

  9. Kyle says:

    If you want your vacation property to be an investment you would have to rent it out when you’re not using it. In which case it actually can generate a decent return.

    For 350K you can buy a 1 bedroom condo in downtown Toronto or you can buy a basic waterfront cottage within, 2.5 hours of Toronto. During prime summer season, the cottage will easily rent out for about 1500-2000 per week, which isn’t far off what the condo will rent out for in a month. With the cottage, you can rent it out for slightly less in Spring and Fall, so potentially you could rent it out for 14-16 weeks per year (albeit at a lower rate) with the condo you cap out at 12 months.

    I also believe over the long run, the waterfront cottage has far more price appreciation potential than a 1 bedroom condo.