Cottage Rental: Practical Financial Advice for New Owners

Cottage Rental: Practical Financial Advice for New Owners

Buying a secondary residence to rent can be a worthwhile endeavour. Are you tempted by this idea? Read the following to start your project off right.

Firstly, cottage owners who rent their property are, as a general rule, delighted with their investment. Despite significant expenses throughout the year such as maintenance, it can be an easy way to generate revenue. But to accomplish this, you will need to be well prepared and, above all, well informed. Here’s some valuable advice from our team of financial experts.

Increasing Property Values

In the 1980s, the value of cottages skyrocketed in Quebec, mainly in popular tourist areas. Since then, the increase has continued. The closer the properties are to a lake, ski resort or hiking trails, the more staggering their resale price is likely to be. The main reason is that city and suburban dwellers are looking to enjoy their holidays in calmer and more natural settings. The high prices are also the reflection of scarcity, if not non-existence, of new waterfront cottages; such already existing properties are now awfully expensive. Whether you rent it out to vacationers or stay in it yourself, the resale value of your well-located secondary residence may surprise you in a few years.

The Biggest Advantage: Discretionary Rental Fees

We know that how much a landlord can charge to rent a house or apartment is subject to rules; however, no legislation under the Régie du logement exists regarding vacation rentals. This means you can fix the price based on supply and demand while aiming to cover your expenses as much as possible.

Beware of the Property Tax

Be aware, though, that some municipalities require owners of vacation rental properties – i.e. non-residential buildings, houses and cottages – pay higher property taxes compared to those for a primary residence. You must factor this into your budget!

Don’t Forget the Insurance!

It costs much less to insure a primary residence then a rental property. You must understand that insurance companies offer risk coverage and the risks increase when there is a constant flow of different people staying in the same house week after week. In fact, not notifying your insurer that you are renting your cottage (year-round or for short periods) could end up costing you more in the event of a claim.

Save on Income Tax!

On the one hand, the income you earn from renting your vacation cottage will be taxable; on the other, a number of expenses can be deducted. This includes property taxes, insurance fees, mortgage interest, heating, house cleaning, and professional fees such as accountants and electricians. In the end, you might be able to significantly reduce the amount of income tax you pay.

However, it is important to know that if you occupy the property part of the year, you will not be able to deduct 100% of these expenses. For example, if you live in your cottage five months out of the year, you will only be able to claim 7/12 of eligible expenses. Moreover, when you sell this cottage, the equity you have earned will be taxable at a rate of 50% unless you can designate it as your primary residence.

A Change of Usage May Be Costly

Not all cottages in Quebec can be legally rented. You need a certificate and a rental permit. If the cottage you are looking to buy is not zoned as a rental, you can submit an application for a change of use to the municipal authorities, but this can be expensive: you will be taxed on the difference between the market value of the property and its adjusted cost base.

Do you want to know more? Ask a RE/MAX broker who is an expert in this field. Many specialize in finding cottages for sale that fit the bill for use as vacation rentals.

RE/MAX Québec

By RE/MAX Québec

By RE/MAX Québec

A leader in the real estate industry since 1982, the RE/MAX network brings together the most efficient brokers.