Primary Residence vs. Vacation Property

Opinion 39

I’ve always had this bizarre flirtation with vacation properties that is forever-bound to go nowhere.

It kind of reminds me of this girl I met on a ski trip back in 2007, except I think in this analogy, I was the vacation property…

Or maybe it’s like that guy or girl at your office? The one you like smiling at, occasionally telling a dirty joke to, and then there was that one time you went for a 75-minute lunch at TGI Friday’s without the rest of the department? Oh boy!

I am almost positive that I will never purchase a vacation property, and yet every time I go away, I can’t help but look.

I’m up at Deerhurst Resort for a few days with my wife and child, in what can be called a “borderline vacation,” since it’s less than a week, and is 2.5 hours from the city in case I need to rush back. I also have a backup laptop battery. Who brings a backup laptop battery on vacation?!?!

I was having dinner with a group two months ago, and when the token question, “So, any vacation plans for you guys this summer?” came up, I calmly offered, “We’re going to Deerhurst in July.”

One chap at the table, who I think is an incredible snob, and who seems to like all the things that I do not in life, almost spit out his Zinfandel when he shouted, “Deerhurst fucking sucks!”

Yep. That’s the way to respond in a social setting.

I asked why he felt that way, and he said, “There’s like no fine dining there! Seriously! And shopping? There’s no shopping!”

Oh, how well they know me…

Fine dining and shopping. Yep. That’s soooo me!

Call me pathetic if you must, as I already know that I don’t fit into society’s definition of “classy,” but I don’t really need to buy a Cartier watch when I’m helping my 2 1/2 year old daughter make her first sand-castle. I don’t need to eat dry-aged Wagyu in a restaurant that only seats 18 people and books nine months in advance. I would rather help my daughter pull the pepperoni’s off her pizza.

What can I say?

I’m going on 39-years-old, I have a wife and one child, and that’s what’s important to me. I will never be one of those people who keeps an infant up until 10:30pm just so “Mom and Dad can enjoy their trip too,” or be that family that brings two nannies on a family vacation.

This resort is interesting, and we had the “privilege” of being one of the first groups to stay at the new Lakeside Lodge which just opened last week.

So let’s see….

First, they were two hours late providing us with our room. And as I explained to the young lady in my finest Mr. James Fleming demeanour, “If you’re not early, then you’re late. And if you’re late, then you’re REALLY late.” I mean, who doesn’t love a 6pm check-in?

Second, the crib we ordered wasn’t present, and again, I channelled my father in response to housekeeping saying, “We’ll see if we can find one.” I was like Jerry Seinfeld in explaining that having booked this two months ago, there was plenty of time to have already “found” a crib, and now it was merely a matter of bringing it to the unit.

Third, our “fully stocked kitchen” didn’t have a single thing in it.

In the end, they were out of cribs, so we got a “pack and play” that the kind young man who delivered it didn’t know how to put together. And our kitchen wasn’t “stocked” until the next day.

But you know what?

My daughter is loving this place, so none of that matters.

What I find interesting about this flashy, new “Lakeside Lodge” is that these are condo units, and the entire building was sold to investors. It’s a great way to pay for something, if you’re a developer and/or resort owner who doesn’t want to spend his own money! Why did into your own pockets to build a new hotel when you can just pre-sell the suites as condos, and use that money to finance the project? Tell the buyers/investors that they can put their units in the “rental pool,” and you end up getting all these units back anyways! Sure, you don’t own them, but for the 2-weeks per year when each of these owner/investors want to use their suites, it’s worth it. Plus, you get to charge them fee, after fee, after fee – for booking, managing, cleaning, et al.

Now that is thinking outside the box!

While waiting two hours for our room on Tuesday, I happened upon a fantastic read in the Toronto Star:

“First Time Buyers Should Think Twice About Recreational Properties”
Ross Marowits
Canadian Press
Tuesday, July 2nd, 2019

This was seemingly an oxymoron, was it not?

To see “recreational properties” and “first-time buyers” in the same sentence?

You wouldn’t put “Casanova” and “virgin” together, would you?

Cart: meet horse.

Or at least it used to be.

Last year, my colleague told me that two friends of his from school were on the house hunt, as they had been renting here in Toronto for quite some time. Five years, six years, maybe more? Who could count. Whether it’s the money you spent on rent, or the lost appreciation you might have had if you owned a property during that time period, either way, this couple knew it. So they hit the ground running, and went hard at the search.

They didn’t end up buying in Leslieville, if that’s what you’re thinking.

Not in Danforth Village, or in The Junction.

Not in the Beach, not in Bloor West Village, and they didn’t “think outside the box” and buy in Mississauga and decide to commute.

Nope.

Do you know where they bought?

Prince Edward County.

And if you’re like me, you’re thinking, “Wow, that’s one HELL of a drive every morning!”

These opted to kick conventional wisdom in the junk, and instead, buy a vacation property, and continue renting in the city.

Now I’m sure if we broke down the costs associated with this, perhaps we could make an argument. If they’re in a rent-controlled property here in Toronto, and if their property in Prince Edward County is prominently featured on AirBnB and VBRO, maybe, just maybe this makes sense?

But I’m not so certain it does.

And the logic here on their part was, “Toronto prices are expensive, so why not buy our vacation property first? That way, we have someplace to go on weekends, and we can figure out what to do with the primary residence later.”

It makes perfect sense………………if you convince yourself that, in fact, it does.

To me, it’s bonkers.

And the Toronto Star article above seems to echo my thoughts.

From the article:

First-time home buyers eager to get into the housing market should think twice about buying a recreational property first, real estate experts say.

“It’s more of a lifestyle choice than it is a great investment choice,” says Brad Henderson, former president and CEO of Sotheby’s International Realty Canada.

Some hot locations such as the Muskoka Lakes, Georgian Bay or Collingwood north of Toronto are seeing prices soar because of short supply — and properties there may now be as unaffordable as Toronto. That’s prompted potential buyers to look eastward in Ontario, at real estate in Prince Edward County, or westward to the shores of Lake Erie.

These types of purchases could be good for someone planning to use it as a weekend getaway or summer retreat, but the properties typically need to be within a three-hour drive of the city.

While more affordable than urban housing, recreational homes typically appreciate at a slower pace than city homes, Henderson said.

“So if not on a lake or close to mountains, those properties follow the market versus lead it, whereas well-located properties in Toronto, Vancouver, Calgary and Montreal will tend to appreciate at a faster rate.”

I’ll be honest – I had never considered the concept of buying a vacation property before a primary residence until my colleague told me the story of that couple above. And yet in the Toronto Star article, Royal LePage CEO, Phil Soper, refered to it as a “trend” prevalent in years past.

Perhaps my lack of consideration was due to my overall feeling toward vacation properties: they’re generally a misuse of capital for most owners.

I’m not being a Debbie Downer here, and I’m not trying to insult you or your family for owning that cottage, or condo in Florida, or even your ranch in Idaho like the Fleming family, but rather I think that the costs associated with most vacation properties make no sense, and thus it’s true, you’re wasting money.

Whether or not a vacation property makes sense mainly comes down to two things, in my humble opinion:

1) Net worth
2) Age

If you’re independently wealthy, then the cost of a vacation property is of little consequence.

And as you get older, and your net worth rises while your desire for every expenditure to make “perfect economic sense,” as a family member of mine refers to it, diminishes, then spending two or three times the amount of money to own a property, as it would cost to rent it, is also of little consequence.

Just think about the folks who buy a vacation property and use it twice per year. You pay to own it for fifty-two weeks per year, so if it costs you $40,000 to own, but you could rent something similar for $5,000 per week, then does it really make sense?

At a certain age, many folks think they’ve “earned” it, and they care less about the cost. “What’s the point to life if you can’t enjoy it?” one might ask, and as I’m pushing forty-years-old, I’m starting to reflect on ideas like this, myself.

But would I go out today and put 20% down on a cottage in Muskoka so that my family might use it a few times per year? Not a chance.

And even if I could AirBnB the crap out of it, I still don’t know that I would.

When I was growing up, a friend of mine went to his family’s cottage in Port Severn every weekend. Like, not “every” weekend, but every weekend. Without fail. It wasn’t a question of if, but rather when. Every weekend, every birthday, every special event, every Christmas and every holiday, they were at that cottage.

And that is a family who really should own a cottage, since they make the most of it.

But in 2019, would you and your family really go to the cottage 48 weekends per year? How many weekends would you need to go, in order for this purchase to make sense?

Ten? Ten weekends – would it make financial sense? Fifteen?

How are you going to get fifteen weekends up at that cottage, for real? Is it possible?

This is where I think the argument for buying a vacation property is flawed for many, many people, and again, I’m not aiming to rile up those who own cottages, because that’s literally thousands of people reading this.

I’m merely suggesting that of many would-be buyers out there, the Florida condo that you use once per year, and let your family stay at a few times while you’re at it, does not make financial sense.

And if you’re less than 40-years-old, and you’re not inherently wealthy, then I don’t think it’s your time.

If you don’t happen to own your primary residence in the major city that you call “home,” then I think the idea of buying a recreational property is absolute madness.

Perhaps this is a young-person thing.

Maybe this is their “I’ll show you” with respect to housing prices in Toronto.

But that doesn’t make it right.

And the article above explains what most of us already know: that the appreciation on recreational properties (if you’re not cherry-picking one place in a selected 4.8 year period to compare to the GTA market…) is a fraction, on average, of that of houses or condos in major cities.

The article above doesn’t mention the old adage, “When the recession hits, the cottage is the first thing to be sold.” Maybe it’s actually Dad’s sports-car, but it depends on the family.

If you’re a 26-year-old and you don’t want to live in a 500 square foot “box” with your fiancée, I get it. But I would actually suggest renting and saving before I ever gave the purchase of a recreational property a single thought…

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

Find Out More About David Read More Posts

39 Comments

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Appraiser

July 4, 2019 at 9:01 am

The best cottage is someone else’s.

TREB data out today for June.

“Toronto Area REALTORS® reported 8,860 sales through TREB’s MLS®
System in June 2019, representing a 10.4 per cent increase compared to June 2018…total new listings remained at a similar level for the month of June and active listings at month-end were down by 5.7 per cent.”

Average prices are up 3%.

Reply
1. Professional Shanker
  
  July 4, 2019 at 4:37 pm
  
  Detached is down YoY (-1.4%) right, all the while having increased volumes.
  Condo investors keeping the market upright! What is the latest stat, 1/3 of condos in Toronto are owned by investors?
  
  Reply
  1. Appraiser
    
    July 5, 2019 at 7:11 am
    
    Your point being….? Oh yeah, the market is actually crashing – got.
    
    Delusional.
    
    Reply
    1. Professional Shanker
      
      July 5, 2019 at 11:27 am
      
      Nope – you puts words in my mouth, I merely said detached prices are trending downwards, have been for 2 years now.
      
      Condo prices continuing their ascent based on investor speculation.
      
      Reply
craijiji

July 4, 2019 at 9:44 am

Counterpoint – I have friends that bought in Muskoka at a great price, rented it out for a couple years and paid down the mortgage aggressively, refi’d and were able to buy in Toronto. Now they own a Muskoka cottage that pays for itself via renters, and a detached house in Toronto. Obviously might not be the norm, but to apply a blanket statement and say buying a recreational property first is a bad idea is patently false.

Also, good luck renting and saving in Toronto with rental prices being what they are. The house next to ours rents for more than we pay for our mortgage.

Reply
Micah

July 4, 2019 at 10:31 am

The day after that Toronto Star article was written, this wannabe BlogTo called “Toronto Storeys” rippled them off:

https://torontostoreys.com/2019/07/buying-recreational-home/

Same same.

Reply
Kyle

July 4, 2019 at 11:06 am

If you rent them out, you can cover most or even all of your costs and you still get appreciation, like you would on an income property. One difference though is you can use the vacation property when not rented, and it does require far more work (both managing the rentals and maintaining the property), more knowledge (local short term rental rules, noise bylaws, fire bylaws) and expertise (completely different real estate market than Toronto and way more complex to analyze), than just owning an income property with a long term tenant.

Recent article in Toronto Life:
https://torontolife.com/style/home/cottages-new-starter-home/

Reply
Condodweller

July 4, 2019 at 12:20 pm

I find it reckless to make a blanket statement one way or another on this subject. As others have pointed out it is a highly personal decision based on personal lifestyle and probably a dozen other factors.

I had a colleague who was one of those who was at the cottage every weekend from May to November. Personally I would never commit that much capital to a vacation property. I had considered renting one year and we decided to fly south for a similar price for a “real” vacation i.e. not had to worry about cooking/cleaning. There is no “right” answer.

Reply
1. Dan
  
  July 4, 2019 at 12:41 pm
  
  “Reckless?”
  
  Get a grip pal.
  
  The author as well as all the commenters are offering OPINION. There would have been nothing to read today if the author just said “this is a grey area so make your own decision.”
  
  Reply
2. Steve
  
  July 4, 2019 at 6:07 pm
  
  It’s not really a blanket statement given the words David expended on qualifying it though, is it? After all he was at pains to say that, for example, for someone who does in face use it almost every weekend it may well make sense.
  
  Reply
Professional Shanker

July 4, 2019 at 4:09 pm

I just don’t understand the statement that appreciation of vacation properties lag GTA, it is simply untrue over a long term of time.

If the vacation properties are in prime to semi-prime cities they appreciate just like large metropolis’, where quality supply is limited.

If anything vacation properties over the past 3 years have outpaced GTA real estate by double digits.

All this being said, you could go a long period of time without decreases when hard economic times roll in.

Reply
1. TheClose
  
  July 4, 2019 at 9:50 pm
  
  Wow, that’s an impressive number of unsubstantiated statements in one short post. Figures, please? Didn’t think so.
  
  Reply
  1. Professional Shanker
    
    July 5, 2019 at 11:43 am
    
    You obviously lack knowledge of the vacation property market in Ontario, not your fault as this is a Toronto RE blog.
    
    Don’t believe a composite vacation property index exists would be great if one did but that would be a impossible job.
    
    Take a look on crea – Grey Bruce, Kawarthas, observe the property price appreciation from 2016 to 2019 – boomer relocation driven & equity financed by primary residence appreciation from 2010 to 2016.
    
    Crea stats up there also includes local houses which reduce the price increases in vacation homes experienced.
    
    Reply
    1. Mxyzptlk
      
      July 5, 2019 at 3:25 pm
      
      “Crea stats up there also includes local houses which reduce the price increases in vacation homes experienced.“
      
      Pure speculation (and poorly worded). You’re simply assuming that vacation properties appreciate at a higher rate then “local” properties. Why? Simply because “everyone knows”? It’s “common knowledge”? Give us more.
      
      Reply
      1. Professional Shanker
        
        July 5, 2019 at 3:52 pm
        
        Similar to the common knowledge that vacation properties appreciate at slower rates than urban properties…….
        
        Reply
      2. Kyle
        
        July 5, 2019 at 6:55 pm
        
        Here is the latest month’s data for Ontario’s cottage country districts:
        http://creastats.crea.ca/musk/index.html
        
        Non-waterfront (local) properties are up 11% Y/Y
        Waterfront properties (vacation) are down 0.8% Y/Y
        
        Reply
      3. Professional Shanker
        
        July 5, 2019 at 10:59 pm
        
        That is the Muskoka region re association.
        
        Reply
      4. Kyle
        
        July 5, 2019 at 11:11 pm
        
        No it’s not. Did you actually click on the link? They tell you which regions are included in the index
        
        “The area served by 800 REALTORS® who belong to The Lakelands Association of REALTORS® serving Parry Sound, Muskoka, Haliburton and Orillia, is located less than a two-hour drive north of Toronto, in the heart of Canada’s Cottage Country.”
        
        Reply
      5. Professional Shanker
        
        July 5, 2019 at 11:26 pm
        
        Yes, greater Muskoka area including orillia, Others to review Georgian, Kawarthas, grey Bruce.
        
        Reply
      6. Kyle
        
        July 6, 2019 at 8:07 am
        
        If you’re referring to all of Georgian Bay when you say “Georgian”, the Lakelands numbers include the eastern Shore of Georgian Bay. If you’re referring to just the Southern Shore, then “Georgian” and”Grey Bruce” are really the same thing.
        
        Anyhow given the size of the Lakelands board relative to Kawarthas and Southern GB, it’s pretty clear you’re grasping at straws.
        
        Reply
      7. Professional Shanker
        
        July 7, 2019 at 9:28 am
        
        The Lakeland region would wouldn’t represent over 30 per cent of vacation properties surrounding the GTA, my larger point is that vacation property % increases have outpaced GTA RE over the past 3 yrs, care to debate? Further wade into whether urban real estate would outpace urban RE over the long term.
        
        Reply
      8. Kyle
        
        July 7, 2019 at 4:49 pm
        
        If you have data or evidence to actually substantiate your claims by all means feel free to share them, no need to ask if i want to debate. But seems like you have forgotten what your actual claim was, so let me remind you.
        
        Your actual claim was this:
        “If anything vacation properties over the past 3 years have outpaced GTA real estate by double digits.”
        
        Not this:
        “my larger point is that vacation property % increases have outpaced GTA RE over the past 3 yrs”
        
        Like i said feel free to share some actual data or evidence to back yourself up, otherwise you should probably just stop making up your own “facts”.
        
        Reply
      9. Professional Shanker
        
        July 8, 2019 at 4:46 pm
        
        Figures below, which include vacation properties.
        
        TREB – June 2019 – $833k, June 2016 – $747k = 12%
        Grey Bruce/Owen Sound – June 2019 – $389k, June 2016 – $270k = 44%
        Lakeland Region Waterfront – Q1 2019 – $505k, Q1 2016 – $360k = 40%
        Kawartha Lakes – June 2019 – $470k, June 2016 – $390k = 21%
        Southern Georgian Bay – June 2019 – $514k, June 2016 – $340k = 51%
        
        Remember to keep mindlessly accepting “common knowledge”
        
        Reply
      10. Kyle
        
        July 8, 2019 at 8:22 pm
        
        And what evidence do you know that outperformance wasn’t driven by “local” properties instead of “vacation” properties?
        
        Remember to keep spewing your own invented “facts” that you can’t support.
        
        Reply
      11. Professional Shanker
        
        July 9, 2019 at 10:20 am
        
        Not only do the numbers below support my statement, I have first hand knowledge of the vacation market over the past few years, so proclaiming that the vacation property segment had outpaced Toronto RE over the past 3 years is a fact that I knew, not surprising that official association figures would support this “fact”.
        
        All coming back to the original point – that it is ridiculous to state that urban properties appreciate at rates above vacation properties over the long term. Can’t wait for the day in 50 years when condos are going for $3m while a cottage on a lake is still under a $1m….laughable!
        
        Reply
      12. Kyle
        
        July 9, 2019 at 11:46 am
        
        It’s quite comical how you dismissed the data when it doesn’t support your made-up facts, but now you embrace the exact same data when they supposedly do.
        
        Reply
      13. Professional Shanker
        
        July 9, 2019 at 12:27 pm
        
        Never dismissed the Lakeland region, just suggested that you review other regions, big difference……
        
        Reply
Jimbo

July 4, 2019 at 11:10 pm

No fine dining or shopping? Wow, very cultured…. I’ve been to Dubai the times, it would be up his alley. Maybe he can go there and get caught drinking Zinfandel in the wrong place.

Reply
J

July 5, 2019 at 9:51 am

The statement that vacation homes appreciate at a slower pace than city homes over the long term is irrational. If one type increases at even just a slightly higher rate than another, its value will eclipse that of the other over the long term. This is due to the magic of compounding. One type can increase at a higher rate than another over the short term, but in the longer term fundamentals will prevent this from occurring.

Reply
1. Professional Shanker
  
  July 5, 2019 at 11:30 am
  
  My point exactly, people get tricked into digesting statements without thinking about them.
  
  Reply
  1. Whaaa?
    
    July 5, 2019 at 3:26 pm
    
    Indeed….
    
    Reply
  2. TheClose
    
    July 6, 2019 at 11:00 am
    
    Shanker, “without thinking” is your stock in trade. Your beatdown at the hands of Kyle (thanks to his, you know, data) should shut you up, however we all know better.
    
    Reply
    1. Professional Shanker
      
      July 7, 2019 at 9:37 am
      
      So do vacation properties appreciate at lower rates than urban RE over the long term, what stats do you have to back that up?
      
      Reply
      1. Mxyzptlk
        
        July 8, 2019 at 2:29 pm
        
        Shanker, what exactly does “would wouldn’t” mean? Also, how is “urban real estate” different from “urban RE,” as in your above statement “wade into whether urban real estate would outpace urban RE over the long term”? Your incoherence is becoming legendary, Shanker. (Okay, let’s be charitable and blame it on your apparent lack of capacity to edit your own missives before hitting “post comment.”)
        
        Reply
      2. Professional Shanker
        
        July 8, 2019 at 3:16 pm
        
        I do not proof read if I am typing on my phone plus I do not get paid for my grammar, thank god otherwise I would be fired and broke!
        
        Reply
KHB

July 7, 2019 at 9:11 am

An observation… while property owners like the ability to rent out their property, virtually no one wants to live beside the short term vacation rental particularly if they are small lots less than 250’ shoreline.

As I sit here in cottage country, there is a ton of resentment toward the rapid increase in the numbers of rental property owners and guests and municipal governments are looking to regulate.

Reply
1. Professional Shanker
  
  July 7, 2019 at 9:47 am
  
  Which of course has pushed the price up within that segment. What regulations are muni governments actually looking to take, capping days?
  
  Reply
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