There are few things more romantic than retiring to a cottage for a warm summer weekend or a special holiday week in the middle of winter. On the surface, cottages may look like lucrative, ideal transactions for real estate investors. They tend to represent a smaller initial investment than other forms of housing and have potential both as long-term housing and as short-term vacation rentals.
Ontario’s cottage country, particularly the area around Lake Muskoka, is infamous for its idyllic setting and relatively affordable real estate. People from the Greater Toronto Area (GTA) and beyond are realizing the potential of Ontario’s cottage country. Recently, they’ve been snapping up properties to use as short-term rentals, particularly during the summer months.
The appeal of cottages in Ontario
The demand for short-term rentals in cottage country is currently so high many people believe it’s possible to own a cottage in Northern Ontario and generate enough rental income off of it to cover both the mortgage, as well as their own steep Toronto rent!
Unfortunately, the reality of investing in a cottage is far more complicated than you might expect. Investing in a cottage is often a serious mistake for real estate investors. It can be challenging to recoup your investment expenses when you buy a cottage, for a variety of reasons.
Cottage properties are often subject to special types of property easements, making it challenging to improve the site, while restrictive rural codes and seasonal zoning laws can make it difficult to use your cottage’s property as you see fit. It’s important to understand the drawbacks and restrictions associated with investing in a cottage property before putting down any money.
Drawbacks of investing in cottages
You might think the rural nature of cottage country means you won’t have to deal with the same onerous zoning laws and municipal codes that can make investing in the city such a drag.
But, some sections of Ontario’s cottage country—particularly the Lake Muskoka region—have challenging zoning restrictions and municipal regulations that can impact your ability to turn a profit from your cottage investment. Here are some of the many drawbacks associated with investing in cottage country:
- Financing troubles: Most institutions will only finance a cottage if it meets the criteria of a primary residential dwelling. This means the cottage will need to have a foundation in the ground, rather than upon cinder blocks. Additionally, the cottage will need to have a heated water line and a furnace installed.
- Seasonal zoning: If you’re hoping to generate income from your cottage year-round, be sure to watch out for cottages with seasonal zoning. Cottages with seasonal zoning have roadways that aren’t maintained during the winter season. As a result, they’re virtually inaccessible once the first heavy snow of the year falls.
- Easements: Many cottages have registered and unregistered hydro easements. Hydro easements require the property owner to assume financial responsibility for maintaining electrical lines that cross their property and allow the local hydro provider to access the property at any time. Unregistered easements don’t appear on the title, so you’ll have to do some research to find them.
- Short-term rental restrictions: Some municipalities in cottage country, especially around Lake Muskoka, are instituting rules restricting short-term cottage rentals, particularly through online sites like Airbnb. Zoning restrictions and noise laws can also complicate your attempts to offer your property as a short-term rental.
- Insurance challenges: It’s often challenging to insure a cottage, especially if the cottage is a significant distance away from a fire hall. Try to get a price estimate of insurance premiums before finalizing a purchase. You may find yourself paying aggressive premiums if you buy a cottage without first pricing out insurance costs.
Lake Muskoka alternatives
The region surrounding Lake Muskoka is arguably Canada’s most famous slice of cottage country. There are, however, plenty of more affordable alternatives worth considering, all within a day’s drive of the GTA. Here are a few alternative pieces of cottage country to consider investing in that might represent lower initial prices and fewer restrictions:
- Haliburton: Equally rugged and with fewer big-name resorts, Haliburton represents an attractive alternative to Lake Muskoka for many potential cottage investors. Unlike Lake Muskoka, Haliburton offers a more pristine natural environment, free of the tourist trappings of Lake Muskoka’s population centers. This means real estate in Haliburton also tends to be cheaper.
- Huron County: Offering stunning sunset views over the east shore of Lake Huron, Huron County’s cottage country offers a little bit of everything. There are active, vibrant party towns, like Grand Bend, as well as more serene environments, like Bayfield. While cottages in Huron County are less heavily wooded, they tend to offer sweeping views of Lake Huron’s sandy shores, instead.
- Mont Tremblant: Less than a two-hour drive from Ottawa, Mont Tremblant is a Québec town offering all the charm of an alpine chalet town surrounded by striking natural scenery. Renown by residents of Ottawa and Montréal alike for its idyllic beauty and charming centre-Ville, Mont Tremblant is a culturally vibrant alternative to Ontario’s cottage country.
- The Kawarthas: Accessible from Toronto in less than two hours, the Kawarthas allows you to avoid the worst of the traffic leaving the GTA. The Kawarthas offer some of the most affordable cottage countries in Ontario; coupled with its proximity to the city, this makes the region especially attractive for investors. Some of Canada’s best bike trails are in this region.
If you still believe investing in a cottage is right for your strategy, consult with local real estate investors active in your community. They might be able to point you toward sections of cottage country with less onerous rules and restrictions or help you identify a short-term rental property management company to help you extract value from your cottage.
As with any property investment, it’s best to know what you’re getting into before purchasing a cottage. A good grip on the pros and cons ensures you’re able to avoid pitfalls and unlock value.