Is a cottage a viable 1st home? How the ownership thought process is changing

Click to play video: 'Peterborough and the Kawarthas cottage prices sharply decline, reports shows'
Peterborough and the Kawarthas cottage prices sharply decline, reports shows
Cottage country became an appealing destination for a home over the course of the COVID-19 pandemic. However, data shows prices are starting to tumble, especially in Peterborough and the Kawarthas. Robert Lothian reports – Jul 18, 2023

This article is part of Global News’ Home School series, which gives Canadians the basics they need to know about the housing market that they never learned in school.

Prospective buyers in Canada’s housing market have a range of choices when it comes to climbing the first rung on the property ladder.

Condos might be the go-to choice for urbanites looking for a more accessible way to buy a home, while those looking for room to grow might try to get a stake in the suburbs or outside the main cities — if they can afford it.

Experts who spoke to Global News for this month’s entry in the Home School series say the COVID-19 pandemic has left a legacy for Canada’s real estate market that’s changed what’s possible for first-time buyers, with income properties and more rural or traditionally recreational homes now a more viable path to ownership.

Story continues below advertisement

Here’s what you should know about where to hunt for your first home.

Condo vs freehold costs to consider

Let’s get the obvious out of the way first — the biggest factor determining where and what you buy in Canada is affordability.

Rising interest rates and a tight rental market in the past few years have made it difficult for many Canadians to build up the savings necessary to put down money on a home and qualify for a mortgage, limiting what homes — if any — prospective buyers can afford.

If you’re looking to buy in a metropolis like Toronto or Vancouver, or even in another major city like London, Ont., Halifax  or Calgary,  a condo tends to be one of the more accessible paths to ownership.

Detached or semi-detached homes on the outskirts of town will typically come with higher price tags and may be a second or third purchase for a buyer that’s already had a couple of years to build up equity in a home.

Story continues below advertisement
Click to play video: 'Condo sales picking up in Saskatoon: Real Estate YXE'
Condo sales picking up in Saskatoon: Real Estate YXE

The purchase price is not the only cost to consider when debating between a condo and non-condo, however. Owners will have to bake condo or strata fees into their monthly budgets as well.

These payments — typically a few hundred extra dollars a month on top of your mortgage — are made to the condominium corporation to help keep the building’s coffers full to address long-standing maintenance concerns or to upgrade communal amenities for the property like adding electric charging stations to a parking garage, for example.

Pritesh Parekh, a Toronto-based Realtor with Century 21, says that when he has clients trying to do the math between condos or freehold properties, he encourages them to reframe how they think about strata fees.

Yes, it’s a regular and extra cost on top of the mortgage — however, when it comes to a freehold property, you’re your own condo board in many ways, and you’ll have to address regular maintenance costs on top of your other obligations when they arise.

Story continues below advertisement

Parekh says prospective buyers ought to think about condo fees as a “fixed cost,” while maintenance on a freehold home is a “variable cost” — invoking the choice between fixed and variable mortgages that rise and fall with changes in benchmark interest rates.

Putting aside a few hundred dollars into an emergency home fund account as though you were paying condo fees can help to soften the blow of burst pipe or broken window when the unexpected costs of ownership inevitably arise, he says.

“You never know when there are more things that can go wrong with a home,” Parekh says.

“So there’s even a more important reason for you to save that little fund on the side for when anything does happen — you’ve already saved up that money.”

There’s one other financial difference between buying in the downtown core and on the outskirts of the city that’s particularly relevant for Toronto homebuyers, Parekh notes.

Land-transfer taxes are typically applied at the provincial level in Canada, but for those buying in Toronto’s city limits, those taxes are applied twice. There is some relief for first-time homebuyers, however, that you’ll be eligible for a rebate of up to $8,000 on land-transfer taxes with the purchase of your first home.

Making the math work on income properties

Putting dollars and cents aside for the time being, Parekh says the other “starting point” for what kind of property and whether you live downtown or further afield is the kind of lifestyle you want to live after ownership.

Story continues below advertisement

Maybe you live, work or study in a city’s core or drive a car and need a parking spot. Maybe you prefer a more urban pace of life to a more removed suburban atmosphere. Regardless, these are considerations that will determine whether you’re happiest and well-suited to a condo or a property outside the busy downtown streets, Parekh says.

For people who are keen to break into the property market but don’t want to give up the downtown rental market, Parekh says the idea of income properties are growing in popularity.

Click to play video: 'Investing in an Airbnb property'
Investing in an Airbnb property

Those unable to afford any home in the Toronto core are buying in cities further afield in the GTA — or beyond — and are renting those out to pay down the mortgage while they continue to rent downtown, he says.

This is a reversal of the traditional path to ownership that Parekh saw 10 years ago when he was starting out as a real estate agent, wherein buyers would purchase their own home and then expand to add an investment.

Story continues below advertisement

Thinking about an income property can also be a pathway to owning a home in an area or of a size you thought you might not be able to afford on your own, he adds.

Suburban homes split into secondary units, often in the basement, are hot prospects right now in Toronto, he says. He’s had clients buy from sellers who already had a tenant in the secondary unit that they just maintained, giving the new owners a built-in income stream to help subsidize the mortgage from the day they got the keys.

“People are becoming more creative,” Parekh says of the current affordability challenges in the market.

“They’re thinking through what their goals are from an investment standpoint to be able to balance their lifestyle, but also balance a financial investment that they could potentially get their hands on.”

Canadians can also find a perhaps unorthodox path to ownership in the cottage market, which has generally seen prices cool from the pandemic-era highs when many buyers rushed out from the city.

Mark Pedlar is a Realtor with Re/Max Bluewater Realty in Grand Bend, Ont., on the banks of Lake Huron. He says that now is a “better time” to consider investing in a recreational property as demand dies down and buyers can take their time to find a property that suits their needs.

Story continues below advertisement

“There’s lots of inventory, there’s less people out and about looking. It’s turned into more of a buyer’s market versus a seller’s market,” he tells Global News.

Click to play video: 'Optimism, demand for 2023 cottage season possibilities on the minds of Manitobans'
Optimism, demand for 2023 cottage season possibilities on the minds of Manitobans

Cottages can prove to be an attractive getaway for those still renting in the city that doubles as an income property when not in use, Pedlar says.

However, he cautions there are a few financial considerations for those eyeing cottage markets like Grand Bend as a potential foothold in the housing market.

For one, those relying on rental income might be pleased with the thousands of dollars they can make renting out the cottage during the peak warm weather months, but owners should set their expectations to prepare for slower shoulder seasons on either side of the summer and for business to all-but grind to a halt in the winter.

Story continues below advertisement

“You’ve really got to manage your money, and manage your expectations, when looking at these things,” he says.

Pedlar also offers a caution for all those considering an investment property as their first home — not just cottage owners.

Many of the incentives and rebates available to first-time buyers are open only to those who intend to live in their home as their primary residence, Pedlar notes.

That means that programs like the aforementioned rebates on land-transfer taxes in Ontario, as well as the new first-home savings account, the home buyers’ tax credit and the home buyers’ plan through a registered savings account, will not help you fund the purchase of a unit intended solely as an investment or income property.

“You’re forfeiting a huge chunk of incentives,” Pedlar notes.

Can you live year-round in a cottage?

Even if the math doesn’t work out for you to buy a recreational property as an investment for your first home purchase, Pedlar argues that prospective buyers priced out of Canada’s more expensive housing markets ought to give another look to cottage country.

Story continues below advertisement

One of the positive consequences Pedlar has observed in his local Grand Bend market through the pandemic has been a push to adapt the popular beach town to more of a year-round community.

The installation of fibre-optic cables has proliferated high-speed internet through much of the community, and he says there’s been a “push” to bring many cottage properties onto the city’s municipal water system rather than the traditional septic system.

Click to play video: 'B.C. recreational property prices to dip slightly: real estate report'
B.C. recreational property prices to dip slightly: real estate report

As long as a cottage property is equipped and winterized for year-round use rather than three seasons, Pedlar says there’s no reason that those with remote or even hybrid work jobs can’t live out in markets traditionally dismissed as recreational only.

With Grand Bend as an example, he says it’s completely feasible for workers to commute the two days a week they might be expected to be in the office to nearby London in about 45 minutes.

Story continues below advertisement

But Pedlar is also upfront about the trade-offs buyers need to be aware of if they’re shopping for properties in the summer when traditionally tourist towns are bustling.

The population of Grand Bend ebbs and flows with the season, Pedlar says, with some restaurants and other businesses completely closing up shop in the fall and winter when beach-goers aren’t around.

“It’s a different lifestyle. It’s very quiet in the winter and very hustle and bustle in the summer,” he says.

Nonetheless, Pedlar says he notices a growing “sense of community” in the region as interest in the market holds and the city continues to make investments in year-round quality of life improvements.

If homebuyers can handle the seasonal variability of living in cottage country or are interested in being part of a growing community, he believes it’s as viable a path to homeownership as any other for those looking for a more affordable option.

“As these small towns grow and have the services that can help make life better for young families, I think you’re going to see more and more people move out and do that,” he says.

Sponsored content