Buying a vacation property Sept. 2005 Rick Gibson sells vacation properties with Royal LePage Real Estate in the Comox Valley of Vancouver Island. When he started 16 years ago, most of the activity was concentrated on Mount Washington, a ski area backing onto Strathcona Park. But since then, the region's vacation property market has expanded to include the whole east coast of Vancouver Island. "The entire region has become a destination," Rick says, "And we're not alone-the market for vacation properties is booming across North America."
According to Rick, the rising popularity of vacation properties is due to demographics. "Baby Boomers are the big market right now," he explains, "They're getting to the age when they have more free time. Boomers also have a fair bit of disposable income, and they're frustrated with recent money markets. So real estate has become an option. The other typical buyer is parents of Boomers who see buying a vacation property as a way to bring the family back together for holiday gatherings."
Baby Boomers are driving the market because they have more free time and disposable income.
But Canadian Baby Boomers aren't the only ones looking at Canadian vacation properties. Like most prime recreation areas in Canada, Vancouver Island has always attracted U.S. buyers. But recently Rick is also seeing more inquiries from the U.K. "Property values in the U.K. have doubled in recent years," he says, "Vacation properties are now too expensive there, and Europe is even more expensive. So they go further afield and end up in Canada. They look at prices here and say, 'Why is it so cheap?'"
Vacation properties can be anything from a lot in the woods to a free-standing home to an urban condominium. "All it needs is some kind of recreational draw," Rick says, "Maybe it's at a ski resort, on a golf course, near a beach, in the countryside or in a destination city like Vancouver."
Obviously, location plays a key role. "That's the first decision you have to make," Rick says, "The property has to be located where you want to be, as well as being easy to get to. Most people don't want to travel more than four or five hours from a major centre."
The decision to buy vacation property often involves more emotion than a regular home purchase. "It's not like you're being transferred and have to buy something to live in," Rick points out, "There has to be a strong emotional attachment to a property, and if that isn't there, buyers generally wait until they find something that gives them that attachment."
But that's not to say it isn't an impulse decision for some people. "I've had people call me on a Sunday morning to say they're on their way up to buy and by the end of the day they've signed the papers. Buying hadn't occurred to them even the night before," Rick says, "Fortunately, most people don't have $200,000-$400,000 lying in their bank account, so they're forced to do some due diligence before making the decision."
Buying is an emotional decision, but it's important to put some thought into it too.
Avoiding a bad decision requires an understanding of why you're buying a vacation property. According to Rick, there are three main reasons:
Personal use You buy the property because you see yourself using it.
Capital appreciation You buy it and expect to sell it later at a profit.
Return on investment You buy it, use it occasionally and rent it out the rest of the time to subsidize your investment.
"Knowing why you're buying helps you make a better decision," Rick says, "If you're buying for personal use, location is very important. If you're buying for capital appreciation, location isn't as important as how much it costs and what the market is like. If you're looking for rental income, the property has to be in an area where people want to stay. If you're just looking for an investment that will pay for itself, vacation property isn't typically the best choice."
Another consideration is the seasonality of the property or the area. "If you're interested in seasonal recreation, there may be unforeseen risks," Rick says, "This year Mount Washington has gone through its second year in 25 years with virtually no snow. Other areas may offer a twelve month program of recreation that isn't so dependent on weather. As for the property itself, most people today want to use their property year-round. Twenty years ago they'd buy a ski cabin for wintertime and a lake cabin for summertime. But today's prices make that unrealistic."
So, have vacation properties gotten so expensive, average Canadians can't afford them? "You can make the purchase more affordable by considering a time share (see box), a more isolated area or a home with fewer amenities," Rick says, "There's always a way to put your dreams within reach."
How to make a vacation property more affordable
Time shares or interval ownership. With a quarter share, for instance, you get a well-maintained property that you share with three other people, so you have access to it one week per month.
Renting it out when you're not there. Aside from earning rental income, you enjoy a tax write-off of expenses and mortgage interest during the periods the property is rented.
Common pitfalls to watch for
Thinking you'll use it, but you don't. The real benefit of a vacation property is the family time you spend there. Even if you don't make money when you sell it, there's still the value of all those good memories.
Thinking you can maintain it, but you can't. Don't buy a fixer-upper if you're not handy. You'll end up spending your holidays fixing, and still have to pay somebody to fix everything you did wrong.
Forgetting that it's a taxable capital gain. Since the property isn't your principal residence, when you sell it you'll be taxed on any appreciation in value.
Ownership options
If you want a truly lock-it-and-leave-it experience, consider a condominium. You won't be waking up in the middle of the night wondering if the hot water tank has burst-but of course you're paying for someone to take care of those worries for you.
With a single family home, you don't have the same peace of mind as with a condo, but you have more freedom. For instance, you can paint the exterior whatever colour you want.
