Renting out your cottage: Maximize the upside of your investment

Renting out your cottage: Maximize the upside of your investment
National Bank Home, Personal Home, Personal

You won’t get rich renting out your cottage. But renting can help you balance out the cost of your investment. Here are some guidelines to follow and pitfalls to avoid to maximize the profitability of your cottage.

Invest where it pays

Both the demand for cottage rentals and the number of online rental platforms have exploded over the past five years. Families with young children, baby boomers, even millennials are getting in on the trend. But watch out: You need more than a charming cottage to attract potential renters.

“Location is still the key determining factor in a cottage’s popularity. Think waterfront. Whether it’s the ocean, the sea, a lake or a river, proximity to water is the top criteria renters are looking for,” asserts author and real estate speaker Martin Provencher. “And you’ve got even more of an edge if your cottage is within a two-hour drive of a major centre,” he specifies.

As a result, we see a major gap between areas like North Okanagan and Kelowna in British Columbia, and Haliburton in Ontario. Areas like Mont-Tremblant and Saint-Donat in Quebec, however, are exceptions – their proximity to ski resorts is worth it’s weight in gold.

A rustic cottage is great. A fully-equipped modern cottage (television, Internet, hot tub…) is even better. “To increase your chances of renting, you have to follow the trends,” Provencher warns. “These days, people want the same comforts from a cottage that they’d find in a hotel.”

Find out what the rules are for your area

Before putting your cottage up for rent, check with your municipality to find out what the rules are. Some municipalities prohibit short-term rentals (by the night, weekend or week).

Some provinces, too, have rules governing tourist rentals. This is the case in Quebec, which has adopted an obligatory classification system for any property rented out for periods of less than 31 days (by the night, the week or the weekend). This program, which takes the form of a star-rating system from 0 to 5, costs owners about $250 per year, plus $5 for each rental unit. Owners who neglect to pay could face fines of between $2,500 and $50,000.

“If you want a four- or five-star rating in Quebec, bring in an inspector before you start renovating,” advises Jean-François Demers, founder and owner of Chaletsalouer.com, a platform with more than 3,100 cottage rentals in Quebec and the Maritimes. He gives the example of a modern, LEED Platinum-certified cottage located in the middle of the woods, that the owner was hoping to rent for top dollar. The cottage got a three-star rating. The inspector didn’t like the concrete flooring throughout the cottage, the gyprock walls or the absence of curtains in the windows.

How much should you rent your cottage for?

There’s no rulebook for how much a cottage owner can charge for rental, explains Martin Provencher. It all comes down to where the cottage is. “You have to do your own little market analysis,” he says. “Compare your property to others in the neighborhood, then set a price based on the quality of your property, as well as the services and extras you provide.”

And you are fully permitted to request a refundable security deposit from renters, Martin Provencher insists. How much should you ask for? That’s up to you. “The higher the deposit, the lower the chances you’ll end up with renters who abuse the furniture and equipment in your cottage,” the real estate expert affirms.

Put yourself out there

To increase your chances of renting, make sure your cottage is placed on several rental websites. An exercise that can easily cost $500 a year. Before signing on with one or many of these, first run a few tests on Google. See what sites show up first in search results when you type in the keywords associated with your cottage. Whether it’s Airbnb, HomeAway, chaletsalouer or Cottages-Canada, take the time to see whether your cottage will attract the types of people who visit those sites. “Unless your cottage is located in an area that attracts a large number of out-of-province tourists, there’s no point in advertising on national or international platforms,” Jean-François Demers recommends. “The important thing is to be on the platforms that reach your nearest major market.”

Entrust your cottage to someone you trust

Unless you live near your cottage, you’ll need to find someone you trust to manage your rental, particularly for maintenance, cleaning, mowing the lawn, and picking up and dropping off the keys. “Dishes, linen, the shower, the toilet, the hot tub… It all needs to be clean by the time the next renters arrive,” says Jean-François Demers. “Otherwise, you risk having negative comments about your cottage on Facebook, Instagram, etc.”

Taxable income, deductible costs

It goes without saying that owners must declare their cottage rental income, says David Truong, advisor at Expertise Center National Bank Private Banking 1859. “You have to charge renters provincial and federal tax, if applicable, depending on the rules of the province where the cottage is located,” he adds.

Costs incurred by the rental, such as ads on rental sites, are tax deductible. Same goes for maintenance and cleaning costs. Mortgage insurance, utilities, telecommunication fees, insurance and renovation work are also deductible, prorated to the number of days the property was rented, Truong continues.

And on that topic, your insurer needs to be informed that your cottage is being used as a rental property. You’ll need to have a policy that includes civil liability, and in Quebec, that policy must be worth at least two million dollars.

Finally, owners need to be aware of when the change in property use comes into effect. A property for personal use becomes a rental property when its principal use is to generate revenue. “When you change the use of a property from personal to income-generating, the property is considered to have been sold and immediately repurchased by you, but you can push back the tax consequences to the moment of the actual sale by making a choice on your income tax return,” concludes David Truong. “The opposite is also true. Whatever the case, you need to clarify things with your accountant to avoid getting into trouble with the tax authorities.”

Edited on 14 August 2017

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