Under what circumstances can you be able to make a good investment out of your purchase of an idyllic and luxurious cottage property? In most instances, buying a cottage property is more of an emotional purchase than anything else. If you think that it is a sound investment, then think again.
Purchase of recreational properties such as cottages is a lifestyle choice, and it will not necessarily result to a fatter bank account. In most cases, seasoned investors don’t look at recreational properties as an investment option for they are not. Instead, the purchase of this type of properties is primarily motivated by their intention to provide their family with great holiday option. It is also their option when looking for a peaceful place for them to retire.
If you love the lifestyle, then you will surely be making a wise decision when you buy a cottage property. However, you have to perform some serious assessment of your financial portfolio since this decision cannot be considered as an investment move.
An Expensive Proposition
When you decide to buy your dream cottage, it is essential that you take into account the additional expense items such as applicable taxes, maintenance and upkeep, second mortgage, etc. All these expense items will impact on your finances for a property that you will use for a few times each year.
On the heels of a recovering economy, sales performance of the recreational property segment has stayed in negative territory. In recent market report, average price of high-end luxury and recreational properties was pegged within the range of $370,000 and $600,000.
Despite the high average price of this property segment, seasoned investors don’t consider them as a good investment option. Cottages are, in most instances, bad investment ventures since they exist in a market which experts consider as illiquid. This means that you may have a hard time unloading this type of properties since there are just a few buyers in this market segment. You may have to accept significant decrease in your financial profile if you decide to sell the property below the principal amount.
A major part of the value of recreational property is attributed to its location. A cottage that is located within a few hours’ drive from the city center and perched near a lake is likely to fetch a better price. This means that you have better chances in selling this type of recreational property. If you own a cottage property that has a full line of amenities, then you can make a good sales pitch if you focus on baby boomers that are looking for a great retirement home.
Cottage is an Expensive Property Ownership
You must have to contend with high ongoing cost if you allow yourself to be charmed by romantic images of sunsets and hammocks that go with owning a recreational property. You have to account for additional insurance, property taxes, maintenance cost, etc. Most lenders are reluctant to approve mortgage applications for recreational properties, and if you are to get an approval, the package may not be that great. Insurance companies may not be inclined to grant coverage to a recreational property that remains empty for the most part of the year.
In order to cover some of the cost, you may consider renting out your cottage property. However, this option brings with it additional responsibilities. You have to spend time and resources to advertise the property. You must also perform the necessary screening process of your prospective tenants. Finally, you must spend significant time in cleaning and maintaining the property.