By Eric Shackleton of CP
Getting away from it all by purchasing a little cottage on a lake could turn out to be an expensive proposition these days, say real estate experts.
“You’re going to need a minimum of 25 per cent down going into a vacation property before a bank or financial institution will even talk to you about a mortgage,” said mortgage broker Ted Wiggins.
“A lot of people … think that purchasing a vacation property is the same as buying a residential property … they come in with five per cent down,” said Wiggins, with Century 21, United Realty Inc. in Peterborough, Ont.
But for prospective buyers looking at a $400,000 property, the average price for a waterfront vacation home in many holiday areas, “you want to have 25 per cent minimum in the bank before you even talk to a bank,” he said.
And that, said Wiggins, is just the tip of the iceberg.
There are at least 13 extra costs that buyers must keep in mind when purchasing a cottage. These include appraisal fees, property taxes, survey fees, property insurance, mortgage brokers fees, service charges, legal fees, mortgage loan insurance application fees, moving costs and maintenance fees.
There is also water quantity and quality certifications, local improvements and land transfer taxes, he said.
The total cost of all the fees really depends on the price of the property and where it is located.
“You could be into $5,000 to $10,000 on the average property” on top of the $350,000 to $500,000 you may have to pay for the whole package, Wiggins said.
But has this dampened interest in buying vacation properties?
Not at all, said Wiggins: “Interest in buying is fairly high.”
The price of waterfront properties has gone up so much over the last four to five years, however, “that your average person is not in the cottage market.”
“For something half decent you’re looking at anywhere from $350,000 to $500,000 for a property,” he said.
A study done last year by Royal LePage Canada showed that nationally, the average price of a standard waterfront property reachable by land had hit $427,589, a 13 per cent annual increase.
Sandy Cardy, vice-president of tax and estate planning services at Mackenzie Financial, said that figure still made sense.
“There are certain places in Ontario where it would be higher or in British Columbia where it would be higher than that,” she said.
“On average, though, I would say that’s about right.”
Wiggins recommends several steps when setting out to buy a cottage.
He says people should get pre-approved for a mortgage before looking for a property, since that will give potential purchasers “complete peace of mind.” Mortgage brokers can obtain written pre-approval at no cost and no obligation.
Buyers also should pre-assess what monthly dollar amount they feel comfortable committing to before getting pre-approval for a mortgage.
It is also best, said Wiggins, to go over what your economic prospects are before committing to buying a cottage — like how long you plan to own the property, whether interest rates going up or down, and any changes your income that might change the amount of money available to pay off the mortgage.
Buyers should also check out the municipal tax situation in the area where they’re planning to buy a vacation property, said Wiggins. Local property taxes have risen quite substantially in the past few years as provincial governments have transferred many services to municipalities in order to balance their books.
Greg Mulligan, a real estate lawyer with Bourne, Jenkins and Mulligan in Orillia, Ont., recommends using a lawyer in the area where you plan to buy a cottage.
They will be “familiar with properties in that area and cottage property … and local issues like native (aboriginal) concerns,” bylaws, taxes, fees, he said.
Della Dwyer, a mortgage broker in Barrie, Ont., says prospective buyers should also check on the accessibility of the properties they are looking at buying.
“Accessibility is one of the main pet peeves that lenders have,” she said. “There’s a few lenders out there who will do lending on an island.”
“But when somebody has to depend on a boat or ski-do in order to get to an island, the first thing lenders will look at is — ‘what if there’s a fire?’”
Wiggins said potential buyers should also keep in mind the turbulence rocking stock markets and the rapid rise in fuel prices.
If “you were coming up from Toronto last year … (for) $50 for a tank of gas … you’re now going to be looking at $75 to $100.”
Add all this together and a permanent move to paradise will cost you, said Wiggins. “If you want to put a 1,000 square foot cottage on a 100 foot waterfront lot, you’re into a $450,000 to $500,000 investment.”
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