Home Month and Year October 2016 The (Local) Home Away from Home

The (Local) Home Away from Home

A recreational property can be a smart investment with a big impact on your financial future


Ah, the vacation rental! It’s the ultimate real estate investor’s dream – a place that grows in value while offering year after year of enjoyment.

But in this economy, how viable is this dream?

According to Elton Ash, regional executive vice president, RE/MAX of Western Canada (1998) LLC, those looking to buy a recreational property should consider, but also look beyond, the state of the market.

“The decision to buy a recreational property should be based on lifestyle and affordability as opposed to a ‘return on investment’ point of view,” Ash counsels. “Historically, recreational property investment is done with discretionary dollars. Therefore, if the economy turns down, this type of property is affected to a greater extent than primary residences. Nevertheless, a good investment isn’t always determined by the dollar return of an investment. It can also be measured by the enjoyment factor and lifestyle factor it may bring the owner.

“Therefore, this is really a personal decision that will vary family by family. Many of us recall fond memories of time spent at the lake. Many of those in the younger generation want to provide those same experiences for their children. Baby boomers also want to provide these types of memories for their grandchildren, so they think of recreational property as a legacy.”

If you are considering a recreational property, do not assume that you will have the same mortgage structure or down-payment requirements of your primary residence.

“Lenders look at recreational property as a discretionary spend and will typically require a greater equity position than in a primary residence,” Ash points out. “This will also be related to the personal finances of the family. I would suggest speaking directly with a mortgage lender for greater detail.”

While some families turn to Mexico or other perpetually sunny locales for their recreation home, it pays to look a little closer to home. Alberta’s diverse landscape of everything from towering mountains to glassy lakes, rolling badlands to thriving urban centres, attracts millions of visitors each year. Buying a local recreational property can be the ultimate money-saving medium between flying out of the country for a holiday and the increasingly popular (money-saving) staycation – and many real estate investors are catching on to this notion.

“Calgary residents travel near and far to enjoy recreational property investments,” says Ash. “Areas that are closer to the city tend to be more popular. For example, Canmore or the Crowsnest area are very popular for mountain retreats. Sylvan Lake or Windermere are popular, given the closer proximity, for lake property. We see a great number of Albertans travelling to the Shuswap or the Okanagan to buy lake-oriented recreational property as well.”

When it comes to investing in a recreational property closer to home, it’s not just the travel savings in the here and now that can be beneficial. The financial impact can be felt over the long term. Ash explains, “Given the current economic cycle Alberta is in at this time, there might be greater value available in looking more locally for property as opposed to the Shuswap or the Okanagan, as those areas are also very popular with Vancouverites and foreign investment, which is in a strong up cycle at this time. Buying out of country, given the current currency exchange rate, is much more expensive. However, given that buying a recreational property is a very personal decision, the timing might be right no matter where the economic cycle is at the time.”

Timing aside, it’s important to remember that if your vacation home is purchased as an investment – to appreciate in value and then sell, to rent out to tourists, to shore up your portfolio, etc. – to make it count, you have to think long term.

Spenser Bennett, a financial adviser with Edwards Jones, provides advice about long-term investing. “We all want our investments to go up, and preferably immediately, but we [Edwards Jones] believe patience is an important attribute of a long-term investor.”

Bennett points out the benefits of long-term investing, suggesting that real estate can be just one of the items in a strong portfolio. “Long-term investment success relies on preparation: selecting a strategy to take you through good and bad market conditions. Owning a diversified portfolio of quality investments can give you greater confidence that your investments can rebound when stocks have dropped and headlines are bleak.

“When you are younger, you have time on your side. While spare cash at this age may seem modest and there will be plenty of competing interests for your money, you have time on your side to allow even the smallest savings to become significant 30 or 40 years down the road. As those who wait until later years to save will tell you, delays in saving have a dramatic effect on your final balance going into retirement.”

But why invest at all? Isn’t money safer just sitting in a bank?

“Think about it this way,” Bennett counters. “Saving is for today, while investing is for tomorrow. You need your savings to pay for your daily expenses, such as groceries, and your monthly bills – mortgage, utilities and so on. In fact, you might even want your savings to include an emergency fund containing six to 12 months’ worth of living expenses to pay for unexpected costs, such as a new furnace or a major car repair. These are all ‘here-and-now’ expenses – and you could use your savings to pay for them. But in thinking of your long-term goals, such as post-secondary education for your children and a comfortable retirement for yourself, most individuals typically can’t simply rely on their savings – they’ll need to invest. Why? Because, quite simply, investments can grow – and you will need this growth potential to help achieve your financial goals.”

Edwards Jones has earned recognition from J.D. Power Canada for showing four consecutive years of having the highest investor satisfaction record, largely for sage advice, such as this tip from Bennett: “It’s time in the market … not market timing. Some investors think they can succeed at ‘market timing’ – buying when the price is low and selling when the price is high. This would indeed be a good strategy if they could predict highs and lows. No one can accurately forecast these peaks and valleys, though. So, instead of ducking in and out of the market in a vain attempt to catch the highs and lows, simply stay invested. The more time you spend in the market, the lesser the impact you’re likely to feel from short-term price swings.”

Whether you are purchasing a recreation home as an affordable vacation destination for your family, as an investment property or as an asset in your portfolio, Ash reminds us all that you can “never make assumptions on what you will be able to do with a property after it has been purchased. Be aware of provincial or municipal regulations and costs. It is very important to work with a REALTOR® that is very familiar with recreational property in the specific area to ensure there are not any unpleasant surprises later on after possession.”

Ash concludes, “There is no doubt that recreational property is a very important asset to our Canadian lifestyle. My advice to anyone thinking about buying a recreational property is, do not let emotion cloud good judgment. Be aware of all the ramifications and set your budget according to your own affordability. When you have purchased with all this in mind, you will enjoy a stress-free family-oriented lifestyle, which is really what’s most important.”