Is a vacation home a good investment? Sep 20th

The “Big Five” Canadian banks offer investment funds and include Royal Bank of Canada, Toronto Dominion Bank (TD Canada Trust), Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce (CIBC). Let’s explore the best place for you to invest.
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The benefits of owning a vacation property are obvious. A cottage, cabin, condo or trailer a short drive from your home can provide a quick weekend recharge. A property down south can serve as a regular vacation destination or a winter home for a snowbird.

Sometimes, emotions are the motivation for buying a vacation property. I like to evaluate a property purchase from a financial point of view—and here is how. 

The costs of buying a vacation property

Say a property’s purchase price is $500,000. Whether you use cash, a mortgage/home equity line of credit, or a combination of the two, there are other costs to consider.

If you purchase with cash that you could otherwise invest for a 4.5% return (to use a conservative assumption), there is an opportunity cost of not investing that money or leaving it invested. If you borrow money, there may be an interest cost of 4.5%. So, to keep it simple, we will assume an opportunity or financing cost of 4.5%. 

Property taxes, utilities, insurance, condo fees, and maintenance could easily add another 2% to 4% per year in costs…

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