A Cottage Investment

Is a cottage an investment?

Are you thinking this may be a good place to put your money?

With the recent financial crisis lots of folks are. If you have found this page, Google the above line later. A few individuals state that a cottage in a bad investment?

But is it?

If you were fortunate to have purchased 10 years ago you have seen a significant gain (or should have) on your property. Others who waited on the sidelines and never made the plunge still may consider this as an attractive investment.

The best thing about this as an investment is the opportunity to leverage capital, or you put in a buck the bank will put up three.

As an example, for a $400,000 property your down payment will be around 100,000. Depends on the financing, the cottage you buy, the location and a variety of other factors.

You know have the equity appreciation on the value of the $400,000 property.

Assuming values of waterfront properties rise an average of 5% a year for the next five years your property should be worth slightly more than $500,000.

How much would you make investing the $100,000 in another investment program?

There are a lot of issues to consider. If you are thinking of this strictly as an investment, as a great way to accumulate wealth, you need to crunch a lot of numbers.

Unlike the other investment program, this has continuous and ongoing costs that must be addressed.

The chart below is an 'example' of the costs of purchasing and the annual costs for a $400,000 property.

Cottage Purchase for $400,000
Down Payment	$ 100,000
Land Transfer Tax	$     4,475
Inspections	$        600
Lawyers	$     2,000
Closing Costs	$    3,000
Insurance	$      2000
Total Immediate Costs	$ 109,075

Great, now you have you cottage!

Now for the annual expenses

Throw some Rental weeks in to reduce the annual costs. Assume you can get $2000 per week and you rent it for ten weeks in a year, keep two great weeks for your family!

	Monthly	Annual
Property Taxes	$      292	$    3,500
*Mortgage	$   1,745	$  20,940
Heat	$      200	$    2,400
Hydro	$      150	$    1,800
Phone	$        50	$       600
Insurance	$      167	$    2,000
Maintenance @ 1% per year	$      333	$    4,000
Total Annual Expenses	$   2,937	$  35,240
Less: Rentals	$  1,666	$ 20,000
Total Annual Costs	$  1,271	$ 15,240

*Mortgage- 5 year term a 5%, 25 year amortization

So, after 5 years value has increased $ 100,000 and cost you $ 76,000 in expenses. Captial Gains would apply if you sold!

Who knows how much properties will increase in value over the next five and ten years. As Norbert Poll (Canada Club on the Big Rideau)stated 'God, isn't making any more waterfront'.

So is it a cottage an investment? In my opinion, yes!

It is an investment in your family's lifestyle, family memories and vacation opportunities!

Any financial gains are only a bonus...

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