The race to rent
Is the hassle and possible heartache worth renting your cottage? What you should know
Why owners are renting
Maggie and Dennis Robinson* found their dream plot of land on a small, secluded lake in Muskoka in 1997. Three years later, they built their dream cottage, 2,000 sq. ft. on two floors, that comfortably sleeps nine (in three bedrooms plus a loft area), with a spacious sunroom, screened-in porch, wood-burning fireplace framed in stone, pine floors, a modern kitchen, and an ensuite bathroom, including Jacuzzi, off the master bedroom. There is also a canoe, sailboard, and one-person sailboat. “Oh, did I mention that it’s the only cottage on the lake?” asks Maggie.
Although she and Dennis recently retired, for years their jobs kept them too busy to spend much time at the cottage. “We decided to rent it out because it’s such a beautiful spot and we’d like other people to have an opportunity to enjoy it,” she says. She pauses, then adds with a laugh, “And in our absence, our children were more than happy to turn it into a party palace for their friends, so we wanted to stave that off.”
With the economy tightening everywhere lately, financial constraints are compelling more and more cottagers to consider renting, in an attempt to deal with rising taxes and maintenance costs. The trend is doubly telling with cottages, because the invasion-of-privacy quotient inherent in renting is so high. The fact that so many people are now willing to entertain the notion of strangers occupying their family homesteads is evidence of how real the pinch is.
The Robinsons are no exception—the main reason they wanted to rent, they confess, was to cover at least some of the costs of their getaway investment. At first, they used an agency, Gravenhurst-based Vacation Time Realty, a turnkey operation that takes responsibility for all the details of putting a property on the rental market. Thanks to Vacation Time, for the first three years they had an elderly couple who were, as Maggie puts it, “simply wonderful renters.”
When they needed to find new renters, they decided to save the 20 per cent commission and rent it out themselves. The couple bought an inexpensive ad on Vacation Rentals By Owner, which worked out well. The Robinsons charge $2,800 a week, or $5,200 for two weeks. Based on their past experience—“No horror stories,” says Maggie—they expect things to work out this summer as well.
The Robinsons have found a strategy for generating income that works for them. They’ve also found the truth behind an increasingly common, unspoken maxim: Today, renting out a cottage may be the only way to save it.
Boomers becoming landlords
The situation is clearest when you talk to the people who run cottage rental agencies—which have grown from mainly mom-and-pop outfits to include many large and well-run operations. “Over the past four to five years, we’ve seen quite a rise, both in people wanting to rent cottages and people wanting to rent out the cottages they own,” says Kevin Knox, who owns Water’s Edge Vacation Rentals, in Huntsville. “The demand is rising along with supply.” The ongoing economic crisis is a definite factor, Knox says. “Some former renters may not be able to afford to rent anymore,” he says, “but many people who were thinking about buying a cottage are now more likely to rent. And people who rented high-end cottages may rent a slightly lower-end one, while people who were taking trips to Europe may decide that instead of spending $10,000 on a trip to Italy, they’ll spend $5,000 to bring their whole family to a cottage.”
But it wasn’t always this way—the unprecedented situation with cottage rentals in 2009 has its roots in the unique evolution of cottage ownership over the past 30 years. For decades, the rate of vacation-home ownership in Canada changed very little. In 1977, about six per cent of households owned one—the vast majority in Canada, not abroad—and by 1999, ownership had risen by only one per cent, totalling 823,000 households. But a Statistics Canada survey of financial security released in 2006 reported that the wealth of Canadian families had substantially increased between 1999 and 2005, and a significant change was the growth in (and increased value of) real estate investments, including cottages. In 2007, a Canada Mortgage and Housing Corporation report showed that more than a million Canadian households owned vacation properties.
At this point, baby-boomer demographics met economic reality. A study done for Investors Group by Decima Research and released in January 2005, for instance, found that nearly 30 per cent of baby boomers—who represented some 30 per cent of the population, or roughly 9.7 million Canadians—planned to purchase a vacation property, recreational vehicle, or boat when they retired. If the economy had continued to bubble along, no doubt they would have. But with the recent uncertainty, a large percentage of potential buyers turned into potential renters. And many boomers who already owned cottages have become landlords.
Another potential engine driving the increase in cottage rentals is powered by the new reality of cottage succession—when adult children inherit a cottage. It may have been in the family for decades, and may have sentimental value from childhood, but the kids aren’t always able to cover the costs associated with owning (which their parents quietly handled behind the scenes) or the capital gains tax, which is charged on half of the difference between the original cost (plus the cost of any capital improvements on the property) and the current market value when the cottage changes hands, even from parents to their children. Renting out may be the only way the children can avoid selling the property.
This article was originally published on April 10, 2009