Thoughts about buying a vacation property
I can’t stress this enough…..get the help of a good mortgage broker. One who is well versed in financing a second home. Go to someone who works on commission only, someone who makes their living from getting people mortgages. They will be able to tell you, without wasting your time, whether or not you can afford a second home and if it makes sense for you financially.
Think about cost, suitability, lifestyle and risks. You will have to pay insurance, property taxes, ongoing maintenance costs, utilities and the mortgage payment. Can you afford the added expense? Will you be stressing about the money that is due? Do you have the time to go to a vacation property enough to make the costs worthwhile? You could offset the costs by renting out your place during some of the the best vacation times of the year. You won’t be able to enjoy your place, but the financial gain can be substantial so you might want to consider it for the first few years at least! I can suggest ways to help you find good, reliable tenants.
Do you know how much the upkeep will be? Especially if you don’t keep an eye on it year round? This is where suitability and lifestyle come into play. How much time will you spend at your vacation property? It is a good idea to have a property manager look at the property – another cost, but a wise investment.
If this vacation spot is going to be a retreat for a short amount of time each year, maybe a condo is better for you. There are extra fees involved but the outside maintenance is covered.
Varying risks arise if you buy in another province. In British Columbia there are aboriginal claims on a lot of land, so you can only lease the land, even if you own the property. Leases are usually for 99 years, but they are not always renewed. If the place you want to buy only has a 20 year lease remaining, you may only be able to amortize your mortgage over 20 years so the payments may be larger than you were originally thinking. Banff and Jasper, Alberta have a lot of Crown Land and the government can reclaim this land at any time without much warning, regardless of what structures are on the property. So be careful. Work with a real estate agent familiar with the area in which you want to buy a home.
Your primary residence is a great option for financing a second property. If you have equity, you can use it to purchase a vacation property with a refinance or home equity line of credit (HELOC). HELOC’s are good as they have little or no set up fees and you pay interest only on the portion of the HELOC that is used. If you refinance then you may get lower interest rates, but check to see if you will pay any penalties to pay out your existing mortgage.
Once you’ve checked into your financing and considered your expenses you’re ready to start the fun part – finding a great vacation place to call your home!