Tag Archives: vacation property

Mix business with pleasure – maximize the benefits of your second home

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By Salvatore Presti

So, you’ve spent decades building up a nest egg to help provide you with a financially stable and comfortable retirement. The unpredictability and risks involved in many kinds of financial investment so you prefer not to base your entire portfolio on the markets. You want something more tangible, with the possibility of steady growth, and that you can leave to your family when you pass away.

If this describes your approach, then investing in a second home makes perfect financial sense.  Property values tend to increase over the long term, so your capital is growing, despite any shocks the financial markets might experience.  Not only that, you’ll have the option of generating rental income as an additional rental stream.  And, if you choose, you can use your second property as a vacation home for yourself and your family, thereby avoiding the costs typically associated with leisure travel, hotels, etc.

Before you proceed, it’s important to be clear about your principal aim in buying a second home.  Financial growth as part of your portfolio?   Opportunity to enjoy a change of scenery? A place where the family can vacation together?

Types of property

First of all, consult an investment /tax advisor to help you understand the financial implications of second home ownership: not only in terms of your initial purchase, but also whether there are tax advantages due to the ongoing costs, and the eventual sale.

If you decide that second homeownership is definitely for you, the next step is to consider the type of property that best suits your needs, and why.

Let’s consider the options, and the pros and cons of each.

Condominiums

Condos have several advantages. They’re more secure than an individual property, maintenance is easier to arrange, and there’s no upkeep of external areas involved.  You’ll be able to show up, move in and enjoy your home, and then lock up and leave without much effort. That’s great if you want a vacation home for yourself and your family.

However, there are also some disadvantages if you want to generate an income. Many management associations have the right to approve or reject potential tenants, so letting may not be so easy and your property may sit empty at times.  There are likely to be many restrictions in the lease – in terms of noise, use of public areas, etc.  These clauses may make it more difficult to use the property for lucrative short-term or Airbnb -style, without violating the terms of your lease.

Individual properties

With an individual property, you’ll have more freedom to rent it out (subject to city regulations), whether on a long- or short-term basis. Whichever type of tenancy you go for, unless you’re living close by and want to be heavily involved with the day-to-day issues as they arise, you’ll likely need to pay for a property management company.  They’ll liaise with your visitors for you, and handle the headaches associated with maintenance and repairs (at a cost of course). This will increase your expenses considerably. Continue Reading…

Keeping the Family Cottage in the family

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By John Natale

Special to the Financial Independence Hub

Summers in Canada are defined by the great outdoors and one of our favourite summer pastimes is to head up to the cottage (or cabin) to lounge on chairs, enjoy some cold beverages and toast marshmallows on the campfire for a relaxing time with friends and family.

For those who own a cottage, transferring its ownership to children or grandchildren can sometimes get tricky, with many owners failing to realize the potential tax bomb that awaits. Below is one strategy that may help ensure your property remains a space that will continue to generate positive, loving memories instead of a source of worries and sleepless nights for you and your family.

 An in-depth look at the issues

For many individuals, it is important that the cottage stays in the family so the next generations can continue to enjoy it for years to come. The good news is that when you pass away, assets can be transferred to your spouse tax-free.

However, a transfer to your children, on the other hand, may trigger a capital gains tax that must be paid before the children (or their heirs) can enjoy the property. Canadian households can only use the principal residence exemption (PRE) to protect one property from tax on capital gains. If the PRE is used for the home, then the transfer of the cottage to the children will be taxable.

Over the years, many cottages and other vacation properties have increased significantly in value and are now worth much more that their purchase price. It is important to note that 50% of this increase in value is subject to taxation. Many people are not aware that this could trigger a significant capital gains tax liability for your estate and, if it doesn’t have enough assets to pay for it, the estate may be forced to sell the cottage to pay the tax. Ultimately, your family can risk losing the property altogether.

Selling the cottage now vs. later

By selling the cottage to your children today instead of transferring it when you pass away, you can cap your tax liability and pass the responsibility for any future capital gains to your children. Because the cottage is being transferred now – and will not be included as part of your estate – the family can also avoid the time and costs associated with the settling of an estate while avoiding potential claims against your estate from creditors or other interested parties. Continue Reading…