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Investing in a cottage for rent, is it a good idea?

Investing in a cottage for rent, is it a good idea?

Since the arrival of the pandemic, more and more people have dreamed of being away from their homes for a few days or buying a second home, just to refresh their thoughts and take a break.

In 2016, according to a RE/MAX survey, 74% of Quebecers said they had spent time in a country home over the past five years. According to another survey conducted in 2022, this time by Royal LePage, 400,000 baby boomers wanted to move to the countryside or to a recreation area in the next few years.

So we can see that the chalet craze is not only because of the epidemic and that Quebecers have been dreaming of a chalet for a long time. Is it risky to buy a cottage at high interest rates?

There are 3 types of possible scenarios when buying a chalet:

1) You are selling your home

A portion of the money from the sale of your home will be used to pay for your new cottage.

The risk is low, despite the increase in interest rates, because your home will likely cost less in the countryside.

2) Buy a chalet and rent it part time

We will analyze a scenario: Suppose that before the interest rate increase, you had the possibility of getting a rate of 2.5% and that we are now at 4.5%. For a $400,000 mortgage, this represents a monthly increase of $420 (from $1,790 to $2,210). If you rent your cabin for $500 a night, that’s only one extra night a month, if it’s $250 a night, just two nights.

So the impact on the profitability of the part-time rented chalet without significant risks.

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3) You keep your home

You want to enjoy the cottage as a second home without renting it, so make sure your budget allows for cottage costs.

Of course, in order to be able to successfully acquire a chalet, it is necessary to implement and apply some tips … But first, let’s see some of the advantages of taking the leap and investing in another property.

The main advantages of a country house

Investing in a cottage or country house has its share of advantages, that’s for sure!

In fact, this acquisition above all offers the possibility to enjoy a new environment to relax and avoid the bustle of the city.

Also, the chalet can also become a great source of income, in the sense that it is often possible to rent it out on a short-term basis (less than 31 days).

Mission: Fundraising

Buying a second home, an incumbent owner, requires a down payment of at least 5%.

When renting a dwelling for a short period, the down payment is 20% as a minimum.

A good way to go when it comes to getting money to buy a second home is to use the capital in the main residence as a financing leverage.

Tips

  • If you want to own a cottage without cash out of your pocket on a monthly basis, consider renting it. So you will also benefit from it at the same time.
  • Check if zoning allows you to rent a short term.
  • Don’t forget that rental income must be declared on your tax return.