Since we are now basking in the glory of a Canadian summer, I thought I would take an in-depth look at the “Canadian Dream” today of owning a cottage. There is a reason why cottage scenes are a fixture in Canuck advertising campaigns and billboard displays. With our long and dark winters, summers occupy a special place in many of our hearts. It is what gets us through those endless shivering mornings, and chilled nights in February. The only problem is that this utopian image is getting more and more expensive across Canada, and few people truly understand the finances behind such an emotional purchase.
I Hit The Lottery
I am currently the envy of many of my friends being that I have a teacher’s summer and access to a beautiful cabin to spend several weeks at. It is located on beautiful Lake of the Woods in Manitoba/Minnesota/Ontario and it is everything one could ask for. The ironic part is that I grew up without a cottage at all, and I never put much stock in owning one to be honest. We spent the odd long weekend at a family member’s or friend’s cottage, and we also used to rent beachside cabins all over a 300km radius at various times. This was more than enough to give us our summer fix. It was also much less work and much cheaper. So how then do I have access to such a gem now you might ask? Well see that’s the benefit of being with a girl from that area. Her parents have a beautiful property and it’s one of those “been in the family for generations” spots complete with multiple guest cabins and the perfect balance of modern amenities and “roughing it” feel. I am the first to admit I get all of the glorious benefits of living the cottage life for a few weeks, while not having to pay any of the costs. Sure, I help with a little upkeep or a small project while I’m out there, but it is nowhere even close to representing what the place actually costs to maintain.
A Cottage or a Whole Arizona Neighbourhood?
This got me to thinking. How much does it actually cost to buy and own a cabin/cottage on the water somewhere? There are obviously many variables to this equation. For people like my significant other and her parents, the cabin was bought decades ago for a few dimes before there was even proper road access. Today I would conservatively estimate the property to be worth $600,000, and a $1,000,000 valuation wouldn’t be out of place in the area. In the Manitoba area I know that waterfront and water access properties have been climbing in value at an exponential rate. It is the same to some degree across most of Canada (although there are some interesting northern bargains if one is willing to drive a few extra hours), especially anywhere close to urban centres. Let’s just say the range in upfront costs could be anywhere from $200,000 (you won’t find much under that these days), to the $1 million mark, and even beyond that if you come from substantial means. If you take out a mortgage to buy one of these properties remember to add in all those interest costs as well! This represents an interesting juxtaposition with buying a place in Florida or Arizona right now considering $200,000 (in CAD even) will get you a pretty nice spot down there from what I’ve seen.
The Taxman Wants a Slice of Your Utopia
Ok, so say you are going to inherit a cottage, you would figure you’re in the clear for upfront costs right? WRONG. If no steps were taken to identify a cottage as anything but the standard secondary residence, and both parents have passed away, the difference in assessed value of the property, minus what was paid for the property and any renovations (Google something called adjusted cost base) is treated as capital gains income. In the case of my in-laws, that would basically mean somewhere in the neighbourhood of $500,000 in capital gains income. While capital gains tax is only 50% of your marginal rate, that is still going to massive financial hit by the tax man. There is a way around this if parents have the foresight to designate their cottage as their primary residence, and their “house” as their secondary residence. In my in-laws’ case this would make much more sense because the capital gains on their house would probably be $40,000 or so. This could be a massive difference in other words. The calculations that can go into this are probably a post onto themselves, but suffice to say inheriting does not necessarily mean no cost at all.
The Little Things
Now that we have our little piece of heaven by the lake somewhere, how much money do we need just to maintain it? Well, if there is road access, utilities, and any other services, you’re probably going to be looking at a substantial property tax bill. Again, the range here is massive, but likely at least $1,000 and rapidly climbing from there. Then comes that pesky yard maintenance that is the bane of every cabin-goer who is just looking to sit back and relax. Constant lawn work, painting, priming, staining, raking, weeding, etc., all requires not just sweat equity, but also a variety of tools and costs. That isn’t even including any serious renovations. Lake water is notoriously hard on hot water tanks, so if you want that warm shower in the morning (certainly not a necessity for some folks) that’s going to cost you. How about utilities in general? Many cabins now have some form of TV package and internet put in. In our case, my father-in-law installed a high-speed satellite internet hookup, and he split not only the installation, but also the monthly fee with a few of his long-time neighbours. We don’t spend a lot of time online when we are there obviously, but it is nice to check my email or do a little writing if the feeling strikes. These basic costs can easily run $10,000 a year. I would say the vast majority of cottages would come in at, $5,000 minimum.
Now that we have a basic property and cottage calculated, let’s consider some of the more hidden costs. What’s a cabin without some toys right? Boats, kayaks, sea-doos, none of this is cheap. They are even more expensive to maintain. (Ever pay for a part that has “marine” in front of it before? The results aren’t pretty.) You will probably need to upgrade to a towing-capable truck or rent one for multiple weekends if you’re going to transport everything back-and-forth. If you’ve got a gas-guzzling truck pulling your shiny new boat trailer behind it, with multiple gas jugs in the back for your sleek boat to run on you’ll be making your share of stops for gasoline, so make sure to factor that in. Are you a fisherman? I’ve been around my fair share of fishing addicts, and they barely blink at dropping money that makes me cringe. These are just a few of the little lifestyle inflation points that many people don’t calculate in when the summer sun shines in their cottage dream world.
Is Your Dream a Reality?
Certainly some corners can be cut if there is a real will there to keep the family cottage dream alive. Not to sound like a MasterCard commercial, but to many families I know, cottage experiences truly are priceless. There is also the option of splitting time in a sort of timeshare agreement with immediate family members, or even renting out the cabin when it is not being used in order to make it economically viable, but even these require serious time and effort to make them work right.
Personally, I would never purchase a cottage because the staggering cost just doesn’t give me a corresponding amount of pleasure. That beings said, helping the in-laws with theirs, co-operating in with my two brother-in-law at some point, or directly inheriting greatly raises the value proposition for me. I can eat the yearly maintenance costs and all the rest of it if it is basically given to us upfront. If you’re not one of the lucky few in this situation I recommend the same solution my parents had – offering to rent from friends for a couple weekends every year, or checking out local resorts. Even if a couple of weeks costs you $1500 or so, that is a relatively small investment in terms of money, time, and energy when compared with the upkeep on a cottage. As an added bonus you aren’t locked into anything, and you can check out a new place every year.
The loose numbers I threw around are rough estimates of the average in a huge range. What has your experience been with the family cottage and what would it take for you to take the plunge? Just think of the memories right?