Skip to main content

Should you buy a vacation property ahead of retirement?

April 12, 2021

Home Sense

Anne Levy-Ward

Middle-aged couple walking on pathway towards a cottage

After working for 30 or 35 years, you may be fed up with the city. So why not buy a getaway home now and then move in full-time when you retire? Sounds like heaven, right? You can already hear the loons calling on the lake… But before you buy that piece of paradise, you should ask yourself some critical questions. Most important: How will you pay for it? And where (and what) will you buy?

How to pay for your vacation home

If you’re like many people in their 50s and 60s, you’re financially healthy but you don’t have tons of cash on hand. You could be sitting in your biggest asset, however: the equity in your home. To buy a second property, you could consider leveraging that equity through a mortgage or line of credit.

Craig and Yvonne Spencer of Oakville, Ontario, are both 64. After long careers in the insurance industry, they’re looking forward to retiring. The Spencers owned a golf-club condo in Florida for several years, and now have a cottage in Haliburton, Ontario.

“The number-one thing to do before you buy anything is to talk to your advisor,” says Yvonne. “How will buying a vacation home affect your retirement plans?”

The upward trend of home prices in many parts of Canada – especially in popular resort regions – has picked up steam during the pandemic. The sale prices for properties in some areas are outstripping their appraised values, says Craig. And since many lenders are reluctant to finance more than 75% of the appraised value, you’ll have to make up the difference. Your advisor can help you figure out how.


Where should you buy your vacation home?

“When we were thinking of buying, we made two lists,” says Yvonne. “One list of reasons to buy, and one of reasons not to buy. They were both long lists, but the first list was longer.”

To help you make a pros and cons list, answer these key questions:

Do you want to buy a summer home in Canada, or a winter home somewhere warmer?

The Spencers sold their Florida condo because they didn’t spend enough time there to make it worth the expense. And with the rising pandemic-driven cost of travel insurance, Craig says they’re glad they sold.

Will you rent out your second home when you’re not using it?

How comfortable are you with strangers using your stuff? Check the rules if your vacation home is part of a resort complex.

Is your priority vacationing with your family now, or retiring later?

The two don’t overlap completely. Do you want somewhere with lots of activities for the younger folks, for example, or somewhere more suited to your retired lifestyle? “Don’t buy for your family,” Yvonne advises. “Buy for yourself.” If your family enjoys coming to see you, that’s a bonus.

How far are you willing to drive?

The closer you are to a major city, the more you’re likely to pay for your property.

How accessible is the property you’re looking at?

Thinking about island-living? Water-only properties are usually cheaper, but you’ll have to spend $30,000 to $40,000 on a decent boat. Plus, winter access can be difficult. If there is a road, can a large fire truck get through? And what about elevation? That place among the trees above the lake, with the 99 steps down to the water, is pretty. But will you want to climb all those stairs ten years from now?

Is there good medical care nearby?

This is a must-have for a retirement property, particularly as you get older.

Does it have high-speed internet service?

Getting away from it all and unplugging is great, but in this day and age you still want to have access to high-speed internet.

Do you want a three-season or four-season property?

Four-season means fully heated and insulated, with plowed roads. That will cost more, but buying a three-season property means you have to live elsewhere in the winter.

Are there restrictions?

In a “lifestyle community,” a resort, or even a trailer park, there may be rules about overnight guests and renters.

How much work is involved?

“A cottage is a make-work project,” says Craig. “There’s more to owning a cottage than just sitting on the dock and having a beer. The amount of work you’re willing to take on will dictate what kind of property you buy.” If you don’t want to do the work, are there tradespeople nearby who can do it? And can they get to your property?

How much are the property taxes, and what services are there?

The Spencers’ Haliburton property is comparable to their Oakville home, tax-wise – but without fire hydrants or garbage pick-up. Their road is unassumed by the municipality, so they pay their road association hundreds of dollars a year for snow plowing. They have a septic tank and a well, but they had to put in a new treatment system to bring the water quality up to scratch. “When you’re coming from the city, you take all that for granted,” says Yvonne.


What will happen after you’re gone?

If you die without having made your vacation home your principal residence, it will be deemed sold, and your estate will have to pay a potentially hefty capital gains tax bill. In any case, if your children want to keep it, they’ll have to find the money for taxes and upkeep. They may also need to find the money to buy out any sibling who wants to sell.

“It’s crucial to have that conversation with your children upfront,” says Craig.

You can plan for this by buying a life insurance policy specifically to cover cottage expenses. That way, your children would have tax-free money to help keep the cottage in the family for another generation of memories.


Talk to an advisor

Wondering how a vacation (and later retirement) property will affect your retirement plans? We can help with that. Talk to a Meridian advisor.


Learn more about managing your home

How to build home equity
How to prioritize home renovations
What are the added costs of buying a home?