Canadians love their retreats across our beautiful land including lakes, rural communities and bustling neighbourhoods with breathtaking cityscape views.
In fact, 17% of Canadian baby boomers already own more than one residence, while others may be looking for the perfect property.
Second home ownership is increasing with one in ten Canadians owning a secondary property. You may be one of those lucky Canadians who already have a place and want to keep it in the family or pass it on to your kids. Or you may be someone who is itching to find that perfect vacation home.
Regardless of where life finds you, let’s cover off some essentials to keeping or buying a vacation home in retirement.
What’s your vision for your vacation home in retirement?
It’s essential you consider how you plan to use your vacation home in retirement. Consider the following questions:
- How will you spend your time?
- What are your hobbies?
- Will it be a permanent home for family gatherings?
- Can extended family and friends easily visit you?
- Is healthcare readily available?
- What amenities (stores, restaurants, entertainment) are available year-round?
- What would it be like to live in hot or cold weather conditions year-round or part of the year?
- What are the various residency and tax laws that will apply in Canada?
It might seem there are more questions than answers. Take the time to reflect on what matters to you in order to guide your path forward, and talk to your professional advisors, including an accountant when it comes to the impacts on your taxes.
How to buy a vacation home in a hot market
Once you have a good handle on your lifestyle needs, you’ll need to set some realistic expectations on how long it will take to find that perfect place.
While the market is red hot and house prices are soaring, bidding wars are all too common and many buyers are being shut out of the market (or wildly overpaying). You’ll need a good dose of patience and time to navigate today’s housing market. If you’re itching to buy a place at any cost during these market conditions, try to rein in the emotions and look at things objectively as well.
So how will you find the perfect place, especially if you’re shopping when the market is hot?
- Have your financing ready to go, and work with a professional mortgage specialist. For vacation homes and income properties, we’ll help you find the best rate, and can work around your schedule via Facetime, Zoom, Skype or any way you’re comfortable. Our goal is to get you a committed mortgage within two business days.
- Find a reputable realtor in the area. Realtors offer insight and local community knowledge that you can’t find anywhere else.
- Be mindful of hidden or extra costs. These can be associated with a secondary residence such as winter plowing, maintenance fees or club fees.
- Consider the conditions in your offer. Conditions are there to protect you as the buyer, including your deposit, so discuss these with your real estate agent. Don’t forget to consider adding a home inspection, as you don’t want any surprises after you take possession.
- And remember—location, location, and location. You can change most things about a home or condominium, but you can’t change its location, so even if you want to snag that property, make sure it’s the one of your dreams.
What can you afford to buy?
No doubt, you’ve seen that real estate prices in Canada are in the stratosphere, making buying challenging. In fact, we’re currently seeing double-digit price increases across the country, so affording to buy a retreat property could stop your plans.
Crunch the numbers and ask yourself if it makes sense to buy a vacation home right now. As a good starting point, you can use an online calculator to see what you can afford. Keep in mind that you may have to save more money, cut expenses or wait until the market cools down to get the property you really want.
In the end, affordability really depends on your financial situation. If you have access to savings, a line of credit with a reasonable rate, or can access a second mortgage, that affordability may rise. And for those who already own one of these properties, you may consider taking advantage of the market and selling it for top dollar. There are plenty of buyers looking for just such a place.
How to pay for a vacation home?
Whether you’re keeping or buying a vacation home in retirement, consider how it will fit into your lifestyle and whether you can afford to maintain two homes. You may also want to streamline your real estate holdings in retirement for simplicity.
There are a few options for how to pay for a vacation home, including:
- Cash: If you are fortunate to have cash on hand, you’re in the driver’s seat. After all, sellers prefer cash, and this can make for a winning bid.
- Mortgage: Most home buyers will make use of a mortgage, since it offers flexibility and access to larger financing. Securing a second mortgage on your home may also be an option, if it is permitted by the original lender. Discuss this with your mortgage specialist.
- Line of Credit: A Home Equity Line of Credit (HELOC) is an ideal financial tool if you have paid off your mortgage on your principal home or have a lot of equity.
- Rental income: However, if affordability is an issue, you may want to rent your place out when you are not using it, or consider a co-ownership model with someone else.
Tax laws on getaway properties in Canada
You can’t avoid taxes. Whether you own a vacation home or are planning to buy one, you must be on top of tax laws in Canada.
Canada Revenue Agency (CRA) has rules around your principal residence and owning other properties. As always, contact a tax specialist to understand your personal financial situation and whether it makes sense to keep or buy a vacation home.
Finally, a vacation home needs to be part of your financial plan and part of a will & estate plan. This will give you peace of mind and ensure your assets and your loved ones are protected if you can no longer do so.
Prepare today for a lifetime of enjoyment in your vacation home. With some planning, you will be able to buy the place of your dreams and keep it to enjoy with your entire family, well into the golden sunset.
How Wyth can help
We can assist you in finding options to finance your getaway home. We can help you find an approach to fit your needs.
For those with a high net worth or complex estate needs, Wyth Trust can provide further assistance with your will and estate planning.
The content of this article is provided for general information purposes only and is not intended to be investment or legal advice. While this article provides tips for you to consider, it does not reflect the multitude of factors that can contribute to your individual situation. Seek counsel from your trusted professionals when making any investment, legal and financial decisions. While we strive to offer help, we accept no liability for any loss or damages arising out of your use or reliance of the information in this article, including liability towards third parties.