# Inherited a cottage. .. Now what



## 1sImage (Jan 2, 2013)

We inherited a cottage these past few months it finally came out of probate. Great place about 12 acre's, weve been working on it for about 4 years now. New flooring, lots of land work an other things have been done. Its worth around 330000, completely paid for. So my ques is now that its ours an adding a big asset for us, now what? What can we do with this asset we have? 

We have another house, same amout of money in investments, no bills.
Both have jobs.

Now what?


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## Berubeland (Sep 6, 2009)

Cottages are for enjoying Sit in your Muskoka chair and crack open a cold one


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## jamesbe (May 8, 2010)

Or if that's not your thing sell it and do something you enjoy with the money.

I'd sell it and retire -- or pay off your current house if not already done so.

I don't like being tied to one location I rather have 330,000 to travel to a different location instead of going to the same place.


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## 1sImage (Jan 2, 2013)

We love it there, other house isnt payed for. Just wondering what benefits it is to having this asset.


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## Young&Ambitious (Aug 11, 2010)

You could also rent it out when you're not using it.


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## andrewf (Mar 1, 2010)

Cottages are 'consumption', not really investments. Yes, you can rent them out but this is not really a money making proposition, it just helps cover costs.


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## Mall Guy (Sep 14, 2011)

1sImage said:


> . . . Great place about 12 acre's . . . Now what?


12 acres . . . ever done a plan of subdivision, severance, or any kind of RE development . . . put in a road, subdivide into lots (per-sell off a nice colourful plan) . . . or get the approvals in place and then sell to a developer . . . or just kickback and enjoy !!!


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## Four Pillars (Apr 5, 2009)

You got a nice cottage for free and you are asking what the benefits are? *rolls eyes*


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## andrewf (Mar 1, 2010)

^ Same reaction here...


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## Young&Ambitious (Aug 11, 2010)

Here's a different idea. Use a LOC secured against the cottage if you are able to invest at a higher return than your interest costs.

Also, maybe see a tax accountant about estate planning. I don't know your ages or if you have dependants etc, but this could be worthwhile.


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## marina628 (Dec 14, 2010)

how about invite some CMF people up to the cottage


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## kcowan (Jul 1, 2010)

My son treats his cottage on West Lake as an investment property. They have it on several web sites and it is totally occupied in the season. But they use it on any unused days during the summer and in the spring and fall, and at Christmas. You can mortgage it and write off the carrying charges against the rental income, as well as taxes, maintenance, etc.

Then use the proceeds of the cottage mortgage to build an investment portfolio, or to pay off your non-deductible home mortgage, or both.


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## Berubeland (Sep 6, 2009)

1+


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## andrewf (Mar 1, 2010)

kcowan said:


> My son treats his cottage on West Lake as an investment property. They have it on several web sites and it is totally occupied in the season. But they use it on any unused days during the summer and in the spring and fall, and at Christmas. You can mortgage it and write off the carrying charges against the rental income, as well as taxes, maintenance, etc.
> 
> Then use the proceeds of the cottage mortgage to build an investment portfolio, or to pay off your non-deductible home mortgage, or both.


How well does this work? I Ontario, if you fully booked a cottage worth >$500k, you might get $20k in gross rent for 10 weeks in summer. The yield doesn't look great to me, as an investment. Unless you count on price appreciation...


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## carverman (Nov 8, 2010)

1sImage said:


> We love it there, other house isnt payed for. Just wondering what benefits it is to having this asset.


Lots of benefits such as enjoying it in the summer or renting it out. However, the drawback will be when you go to sell it to a third party, since the cottage is not your principle residence, capital gains (payable) will apply..but then again, if it cost you nothing to buy it...paying the capital gains from the proceeds of the sale is not going to be a devastating hit on your income.

Here is a website that explains it a bit. Others on CMF may be able to offer more advice.
http://estatelawcanada.blogspot.ca/2011/01/is-there-capital-gains-tax-when-i-sell.html


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## Lephturn (Aug 31, 2009)

andrewf said:


> How well does this work? I Ontario, if you fully booked a cottage worth >$500k, you might get $20k in gross rent for 10 weeks in summer. The yield doesn't look great to me, as an investment. Unless you count on price appreciation...


Uh - in this case the total cost if 0, so any rental income is infinite yield. If a mortgage is taken out to invest elsewhere the rental income may well cover the mortgage payments completely. Sounds like a great opportunity to turn this into an actual asset IE: something that generates cashflow.


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## MoneyGal (Apr 24, 2009)

Check for insurability before proceeding with this plan. Many cottages are uninsurable for rental purposes. The issue is not so much the property insurance but the liability, especially if you are anywhere near water.


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## Four Pillars (Apr 5, 2009)

Lephturn said:


> Uh - in this case the total cost if 0, so any rental income is infinite yield. If a mortgage is taken out to invest elsewhere the rental income may well cover the mortgage payments completely. Sounds like a great opportunity to turn this into an actual asset IE: something that generates cashflow.


How do you figure the cost is zero? If you have an asset worth $500k, the opportunity cost has to be considered - ie that money could be invested very conservatively and making at least 1% per year ($5,000). To not do that means you are giving up $5k per year which is a cost.

Also - my dad told me that our family cottage used to cost about $8k per year for all costs plus the occasional repair on top of that.


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## andrewf (Mar 1, 2010)

I have yet to see the cottage that has zero cost, including:

-zero maintenance
-zero insurance cost
-zero property tax
-zero utilities
-zero opportunity cost


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## Four Pillars (Apr 5, 2009)

Plus your time. Renting it out will take time. Who will clean it up each week? What will that cost?


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## 1sImage (Jan 2, 2013)

Young&Ambitious said:


> Here's a different idea. Use a LOC secured against the cottage if you are able to invest at a higher return than your interest costs.
> 
> Also, maybe see a tax accountant about estate planning. I don't know your ages or if you have dependants etc, but this could be worthwhile.


Now theres a good idea. Ive become greedy, looking to make money with money. We have enough money to spend, im not looking to take money out of the cottage an go on a shopping spree.

No kids 35/28 ages


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## Jungle (Feb 17, 2010)

I would sell the cottege as suggested above and invest the money. You can then rent another cottage once/ twice per year if you want to get your fix. Just think how many times you can rent with the proceeds of the sale.. and have no responsibility. OR you could use the money from the investment (dividends)to pay for the rent! 

OR you could move in 365 there and make that home.


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## 1sImage (Jan 2, 2013)

Anyone here do this? Got any info to add?


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## andrewf (Mar 1, 2010)

Do what, rent out a cottage?


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## 1sImage (Jan 2, 2013)

Jungle said:


> I would sell the cottege as suggested above and invest the money. You can then rent another cottage once/ twice per year if you want to get your fix. Just think how many times you can rent with the proceeds of the sale.. and have no responsibility. OR you could use the money from the investment (dividends)to pay for the rent!
> 
> OR you could move in 365 there and make that home.


This is not my style, its the same reason why I like to drive nice cars, I could catch the bus but I like to get from point A to point B in sytle. I could catch a bus...

We use the cottage lots, living in the city then going too a place where the only thing you hear around you is the trees blowing is one of the most realxing treasures of the world.
I like owning the cottage.


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## 1sImage (Jan 2, 2013)

andrewf said:


> Do what, rent out a cottage?


Take out a line of credit an make a positive investment from it. For that sole purpose.


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## andrewf (Mar 1, 2010)

I would do that on your primary residence. Probably a lot simpler to do than to do it on a vacation property. I imagine you'd get better rates, too. You mentioned that your primary residence is mortgage free.

Really, borrowing to invest has nothing to do with cottage. Having a residence means you can do secured borrowing at lower rates. If you want to do this, it can be more economical to use a mortgage, since you can get better rates than with a line of credit.


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## carverman (Nov 8, 2010)

MoneyGal said:


> Check for insurability before proceeding with this plan. Many cottages are uninsurable for rental purposes. The issue is not so much the property insurance but the liability, especially if you are anywhere near water.


Not to mention fire insurance. If they are looking for quotes and mention that they want to rent it out, they may be denied insurance by quite a few homeowners insurance companies. Because the risk of fire "could be" greater if the cottage is rented out, the premiums will be much higher too. 

The liability is another thing too. I would think that any property insurance when it's going to be rented out will
be very high..and you omit to disclose that fact...if there is any claim..the insurance company can refuse to pay the claim and cancel your insurance.


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## kcowan (Jul 1, 2010)

andrewf said:


> How well does this work? I Ontario, if you fully booked a cottage worth >$500k, you might get $20k in gross rent for 10 weeks in summer. The yield doesn't look great to me, as an investment. Unless you count on price appreciation...


Close andrewf. It cost $695k, it is a permanent residence. It rents for $3500/week in season. Plus some extras off-season for another 2 weeks. So 12 weeks at $3500 for a $42k gross. They want this to be their retirement home in 20 years and are planning to have it paid off by then. They do the turnovers because their home is just 20 minutes away and she is a teacher. Son does the lawn and plows the driveway when needed. Both do the gardens as needed.

Plus they will be in for a large inheritance from me and my ex-wife around the same time. So no capital appreciation assumptions as they will own it as far as they can plan ahead. But I was amazed at the rental rates. It is the whole Picton area that is a draw for Americans and Quebecers. Wine tastings, fine dining and Sand Banks Park. Satellite TV, high-speed internet, fireplace, high end kitchen, big deck, 4BR/3 bathrooms, double garage with loft, boathouse with gazebo (and pontoon boat if anyone has insurance coverage), lots of trees and gardens.

For OP, you must make some sacrifices now if you want to live in style later. In spite of the natural desire to just enjoy it, if you turn the asset into a wealth-generating asset, you will be amazed at how much better you will end up. Make your capital work for you!


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## donald (Apr 18, 2011)

Why dont you just leave everything be and sell 6 acre's(the back half of the property)If it is desirable(sounds like it is)You should be able to sell that land for a pretty penny no?Maybe 200k/half your land.

You prob dont need 12 acres.-take the profits and add to your portf.


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## 1sImage (Jan 2, 2013)

^ You can no longer build on it. I forget what its called??? Its by a well known trail.


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## Young&Ambitious (Aug 11, 2010)

Is it farmable? I think we've basically covered all the potential uses of your cottage at this point. It's really up to you to determine what you are comfortable with. 

There are people on this forum who use leverage to invest yes.


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## Four Pillars (Apr 5, 2009)

I suggest setting up a trailer park on the extra land. 

Easy money, no hassle.


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## andrewf (Mar 1, 2010)

$42k/700k = 6% yield. Assume 3% net after cost of insurance, maintenance (building depreciation), property tax and utilities. 

Not terrible, I guess. It's fair to assume 2-3% (perhaps higher due to waterfront scarcity) price appreciation per year due to inflation.


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## donald (Apr 18, 2011)

start selling a shitload of firewood lol.....buy a chainsaw.(sure the municipal will like that)
what is wrong with just enjoying it as is(you risk leverage on it and get behind the 8-ball @least in the short term)You might be drinking a beer for other reasons than enjoyment on your dock.(and cursing the place)

You can lose in leverage(obviously you know that)have a place where the stress of $ is no where to be seen(enjoy)----your already way above the curve anyways.{payed off house/300k invesments/debt free/young/good income]Almost hard for you not to be a multi millionaire as the years go by.


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## Lephturn (Aug 31, 2009)

andrewf said:


> I have yet to see the cottage that has zero cost, including:
> 
> -zero maintenance
> -zero insurance cost
> ...


Of course there are costs - but to me those just reduce the net positive cash flow. I suppose you could count the value of the property ($330K I believe) as the true cost even though in this case it did not have to be paid. The real issue is the opportunity cost - if it was sold and the money invested elsewhere (after costs associated with preparing and selling the property) are there other investments that could provide better yield over the long term?

Moot point in this case as they want to keep the property.  Much of the costs will now be attributed to their own ownership of the property, although as mentioned there will certainly by some additional costs required to generate that rental income. In the end if you have zero capital outlay and you can generate a positive net cash flow (rental income - costs) that what I meant by infinite yield. Probably not the best way to describe it, but having an investment that costs you no capital and can kick out a positive net cash flow is a very attractive investment.


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## kcowan (Jul 1, 2010)

andrewf said:


> $42k/700k = 6% yield. Assume 3% net after cost of insurance, maintenance (building depreciation), property tax and utilities.
> 
> Not terrible, I guess. It's fair to assume 2-3% (perhaps higher due to waterfront scarcity) price appreciation per year due to inflation.


There is also the rentup/turnover costs which they do themselves. This was a lifetyle choice for them. If there is any appreciation, their kids will benefit. I suspect there will be a long trough because of the substantial runup in property values. 

The other thing is that it gives them financial leverage. They chose an accelerated mortgage paydown to make sure it is gone when they retire.


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## andrewf (Mar 1, 2010)

Yes, Lephturn--it's all in how you frame it. I see what you are saying about the property have zero cost in this case, but when making investment decisions, it shouldn't matter how or for how much the property was acquired (excepting tax considerations), but rather the opportunity cost. Much like the yield on cost discussions we've had in the past.


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## Rusty O'Toole (Feb 1, 2012)

Keep it and enjoy it. Maintain and improve to suit yourselves. If you ever decide to sell you should make out very well, provided you sell at the right time. Cottage property tends to go up higher when real estate goes up, but go down more when real estate goes down. But generally appreciates as much as or more than city properties.

Another thing you can do it put a HELOC on it and invest the money. Wait for the next time the stock market takes a dive. This is a bit risky, as you are using leverage, but if you are careful it could work out very well. Allowing you to invest your equity without giving up the cottage.


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