Over the course of the pandemic, the desire for more space and a place to just hunker down surged. For some, that place was a cottage or other type of recreational property. Fast-forward to today and in many of the country’s top recreational regions, demand remains strong, far outstripping supply even in the face of rising interest rates. In 2021, it wasn’t uncommon to see recreational property prices up over 40% compared to the year prior. And despite the headwinds of high inflation and rising rates, prices are still expected to rise another 13% in 2022 to an average price of $640,710. “The desire for homes with more space, both indoors and out, is a trend that I believe will long outlive the pandemic. Recreational regions offer greater access to nature and, as a secondary property, can be a good investment if used as a rental home, even in part,” said Phil Soper, president and CEO of Royal LePage. In its latest report on recreational properties, Royal LePage expects single-family recreational homes in Atlantic Canada and Quebec to see the highest price appreciations of around 15%, followed by British Columbia and Ontario at 13% and 12%, respectively.
Things to keep in mind when financing a recreational property If you’ve got dreams of owning a second property, there are some financing considerations to keep in mind, particularly for cottages. One of the most important considerations for any buyer is the down payment, and there are a couple of important distinctions when looking at recreational properties.
The minimum down payment required for a cottage can start as low as 5%, so long as it’s considered a “Type A” property and sells for less than $500,000. These are properties with septic, well water (vs. lake intake), a full kitchen and bath and four-seasons insulation. In this case, the property is viewed as a second home, generally making it easier to get financing through institutional lenders. Then there are “Type B” properties, which are your more rustic, sometimes off-grid (no hydro connection) or boat-only access cottages, which may even include an outhouse. These generally require higher down payments.
Even if you’ve got the down payment covered, you’ll still need to prove to the lender that you can handle the monthly payments on top of the payments you’re making on your principal residence. Lenders will generally want to see your debt-service ratios under 39% of your gross income for both properties combined. With interest rates on the rise, qualification could become more challenging, but isn’t impossible. Give us a call If you are currently or plan to be in the market for a home or recreational property in cottage country, there are still plenty of options available. Give us a call today and we'll be happy to review them with you!