Financial Implications of Cottage Ownership

I came across an interesting article this morning written by Joanna Pachner, regarding the the financial implications of owning a cottage. that is an interesting read.

Although this article is written from a Canadian viewpoint, I think some of the points made are quite valid no matter where you live. For example, unlike home ownership, cottages have a host of financial issues, including but not limited to, attracting capital gains tax when they are sold. Finaincial institutions, lenders, mortgages companies etc, have some strange rules about cottage purchases, or second home investments, some requiring substantial down payments, others even refusing to finance second homes.

Cottages are rather expensive hobbies these days, or at least they can be, depending on where they are, and what they are. A one room camp in the woods is one thing, a fully furnished second home on a large lake is another. It's really no different than owning two houses, with property maintenance, taxes, power bills, and so on. Plus as your handyman skills come into play and you fix the place up, it's value increases meaning capital gains tax having to be paid when it is sold. Hell...even if you don't fix it up, chances are over time the place is going to increase in value.

One part of the article that got my eye was cottage estate planning. Who do you leave the cottage to? Cottages that are left to siblings, generally don't do well. All of a sudden the camp becomes a shared thing, along with all the problems that can bring. One sibling might not have the same financial resources as the other, causing trouble if there are maintenance costs to be divided up and paid. Imagine one brother who wants to pave the driveway to the cottage, while the other can barely afford a car to drive to it anyway.

That touches a nerve for me because I have three children, and only one cottage, so how do you leave it to one and not the other. At the moment, I have taken the coward's way out and left it to my wife, hoping it will be her that is stuck with that decision, but.....

The biggest issue with cottage property as an investment is the emotional stuff tied to cottages. They are the utlimate family property, and financial decisions about places in cottage country are often founded on emotions rather than cold hard analytical thinking. That may be the biggest reason why cottages make poor investments. What kind of investment can never be sold because of such strong emotional ties to the place that parting with it would break hearts?

I am lucky that our country place has two lots, and although it would not be quite as nice if it was subdivided, it might be the answer for at least two of them. I have been thinking that one gets the cottage, the other the vacant lot and the equivalent cash to build a cottage. Provided I have enough money when I die to leave for another place to be built. Of course that leaves one kid out in the wind, without anything, so I guess all I can hope is that one goes bad....or moves away....that's why I encourage them to travel. (I'm kidding of course, perhaps the third child will get the house in the city.)

On the other hand, maybe I will sell the whole works, cottage, house in town, and blow my money travelling North America in a motorhome. That's always an option kids, if you are reading this.....and you know your mother and I love to travel....

You can read the article I was referring to here.