Buying a 2nd property

The purchase of a second home is often motivated by a desire for nature, peace and tranquility. But in a hot market, is buying a cottage a good investment?

According to Pierre-Raphaël Comeau, financial planner at Laurentian Bank Securities, between 2020 and 2023, the monthly mortgage payment for a cottage will double in value, taking into account soaring prices and fluctuating interest rates.

But real estate will still be an attractive investment area in 2023, and second homes are no exception. Of course, some sectors will be more sought-after, with greater potential for return on investment. This is particularly true of the Montérégie and Tremblant regions, which offer privileged access to nature in an area with no shortage of services. However, access to property in these areas can be more difficult.

Let's talk numbers...

Yes, the purchase of a second home for personal use is not taxable, and the downpayment required can be as low as 5%, depending on the financing program. However, with mortgage rates trading at high levels in the current climate, it may be more advantageous to purchase a home at a lower price, to reduce the value of the mortgage and carry out renovations, which will increase the value of the investment over a longer period.

Banks also offer home equity lines of credit, which provide credit up to 65% of the value of the home, with more flexible payment options: only interest and insurance premiums - where applicable - are charged each month, and the principal is repaid according to the terms chosen by the buyer.

So why not rent?

Yes, it's a good source of potential passive income. But in today's market, location is even more important than ever, to maximize your value in the eyes of tenants. With this in mind, it's advisable to carry out a brief market study to select an area in year-round demand.

And be sure to comply with the standards in force in Quebec and Ontario for short- and long-term rentals.

In short, buying a second home remains a relatively stable real estate investment with limited risks. However, in the current climate, more careful planning is required to get the most out of this major expense... and to enjoy the benefits without the headaches.

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This blog was written, designed and produced by Pierre Dauth, Investment Funds Advisor with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this blog comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.  Mutual Funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.