With real estate property prices going up and up, it may be well-worth-it to invest in as much real estate as you can as an investment for your future. Vacation properties have particular appeal, as they can make money while the value of the home goes up. While you can use your vacation property, you can also rent it out and make rental income, while watching your investment vacation home’s value rise. There are a few things you should consider before purchasing a vacation income property.

Reality

As a property developer I have learned early on my career that you make money on rental property three ways.

1. Rental Income- that means your income – expenses = income taxable every year. Unless you are a cash buyer your return will be moderate: on average 5%.

2. Property Appreciation – hopefully your property will appreciate in value. Over the medium term (3-5 years) to long term and increase of 5% per year is a safe bet. So a $300,000 property will appreciate $15,000 per year. So 5 years an appreciation of $66,475 (remember the appreciation is compounded year over year).

3. Mortgage Principal - If you have a mortgage the rental income will pay down your mortgage principal and interest! In our example $4100 of principal will be paid the first year approximately $27,000 over the first 5 years.

(Calculations are based on a $300,000 property with a mortgage of 195,000 @ 5% amortised over 25 years and are for illustration purposes only.)

Location

Collingwood is one of the best spots for buying a vacation home, as we get a great number of visitors here every year, skiing the hills and golfing the links. With the water, the mountain and too many recreation opportunities to name, Collingwood is definitely one of Ontario’s best vacation destinations.

While all of this is true, where you buy in Collingwood will matter, as visitors to the area want to be close to the best amenities. Pretty much most of Collingwood is prime real estate for a vacation property, being close to the Village, the ski hills or the bay is going to mean your vacation property will be rented quite a bit more often.

investement property on the water

How will renters find you?

The internet opened up so much opportunity when it came to renting a property. Websites like AirBnB and VRBO let homeowners post their rentals, get reviewed and build a loyal client base of renters. Of course, you’ll need to buy a vacation home that is appealing for the market you are trying to lure in. For example, if you want the young ski hounds, the home should have many bedrooms, room for skis and other equipment, along with other amenities that will draw them in (i.e., a hot tub). If you are looking to attract older clientele who may be coming to the area just to tour around or golf, you’ll want to have tasteful decor, an updated kitchen and a relaxing master bedroom.

Market Place

Who are you renting the property to? Season rentals of up to 4-6 months, Monthly rentals or short-term rentals. The shorter term the rental the greater the rental Charge. However the greater the effort in managing the rental. Check with the local bylaws Collingwood doesn’t allow rentals less than 30 days where as The Town of the Blue Mountains allows short term rentals but you need a license or be part of a managed rental pool.

The future

While this vacation property could be your cash cow now, you should still consider its purpose in the future. Maybe you’ll rent it out now and then use it as a retirement residence. Make your choices taste full and don’t over spend. There are some good deals on used furniture but don’t get a hodge podge from the good will it will cheapen your appearance and not attract the clientele you want.

Costs

Besides the mortgage, a vacation rental property will have other costs. These include:

· Property taxes

· Maintenance

· Utilities

· Fees for advertising

· Upkeep and purchase of furniture and other functional parts of the home (i.e., replacing dishes)

· Damage by bad renters

· Licensing

Buying a vacation investment property is a smart idea, if you’ve done your research and know exactly what you want. Like any business, and this is a business, if you run it professionally and keep your costs to a minimum you will make a healthy profit in the long run.

Karl Hannan is a Sales Representative for Royal LePage Locations North

khannan@realestateincollingwood.com