Real Estate Talk:
Purchasing a Country Home
Considerations when buying a country home or second residence
By Joseph Marovitch
Updated March 24, 2021
Demand for property away from the city has skyrocketed during, and due to, the pandemic. Never has there been so many inquiries for the few lakefront properties available. This has caused prices to soar and multiple offers to abound. I have had many requests by buyers to find property in the Laurentians with lakefront or lakefront access. Therefore, the following is the process for the endeavour.
A second residence in the mountains and/or by the lake is a dream retreat for many. It is a sanctuary away from the hustle and bustle of city life, especially now. It is an escape from work and the daily grind, a change of scenery, a place to rest and gather one’s thoughts, or think of nothing. It can also be fun and exciting. A mountain retreat can provide hiking trails, swimming, sailing, waterskiing, alpine skiing, bonfires at night and stars, lots of stars.
When considering a country home to purchase, there are factors that come into play that would not otherwise, if you were purchasing in the city. Most country homes are not in or near a town, therefore the house must have its own well for water and septic tank for septic situations. If the property you are searching for has waterfront, many more factors come into play such as, is the lake navigable or non-navigable (motors boats allowed or not)? Does the lake have an entrance and an exit, or is it sedimentary (meaning not enough oxygen enters the lake to make it liveable and drinkable)?
When considering a country home to purchase, there are factors that come into play that would not otherwise, if you were purchasing in the city.
When searching for a country home, these are the questions that must be answered:
- How far do you want to drive from the city?
- Do you want lakefront?
- Proximity to your neighbours? Most buyers of second homes want privacy as this is their getaway home.
- If lakefront, do you want motorboats or no motorboats?
- Proximity to ski hills and towns?
- Number of bedrooms, bathrooms?
Once you have found that perfect home, the items to inspect and consider are:
- Condition of the house via a regular inspection
- When was the chimney last cleaned and inspected?
- Water test to ensure the well is clean and the water is potable (drinkable)
- Lake water test to ensure the lake water is bacteria safe for swimming
- Ensure the septic tank conforms to city bylaws and is the right size, based upon the number of bedrooms in the house.
- Ensure the septic tank has been emptied. Most municipalities require the septic tank be emptied every 4 years if the house is a second residence and every two years if it is a permanent residence.
- Does the house have a working sump pump? A sump pump is a device placed in the basement of the house, below the floor. When the water table rises in the spring, the sump pump automatically pumps the rising water out and away from the house to keep it dry. A sump pump is usually required for homes by a lake.
Finally, the tax implication. In Canada a primary residence upon selling is tax-free. A second residence is considered a luxury item and is therefore not tax-free. Upon selling a second residence, any gain is considered a capital gain and is taxed on 50% of the gain. If you paid $100,000 for the country home and later sold the property for $150,000, you would be taxed on 50% of the gain or on $25,000. The tax you must pay is dependant upon your income, therefore it is always a good idea to purchase the second home and place it in the name of the person in your household who has the least income, to pay less tax.
A second property can also be placed in the name of a spouse as a primary residence. Therefore, upon selling, the property is tax-free.
Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, click here.
Next article: Effective property pricing to maximize gain
State of the market
The market is hot, and prices continue to rise due to high demand. The rise in demand is driven by exceptionally low-interest rates and the rise in prices is due to the low inventory. At this point, many buyers are speculating that prices will continue to rise and are jumping on the bandwagon to purchase property. However, because there are so few properties available and many buyers offering, buyers are providing offers with fewer conditions, such as no inspection or offering cash without financing, to get ahead of the game. There are serious risks in making an offer without inspection such as expensive structural defects that must be dealt with immediately after possession.
‘If a buyer is going to purchase a property at this time, they should consider all the economic factors at play and all the possible risks before purchase, if they have to compete for few properties and pay high prices.’
Another big risk is not considering all the apparent economic factors that may cause the market to take a turn for the worse. Many people have been unemployed due to the pandemic, many businesses have closed, and household debt has increased. If buyers are purchasing property due to low-interest rates while much of the population is in debt, they may not produce enough income in the future to pay the carrying cost of the property. Another possibility is that the pandemic ceases and people in need of capital decide to place their homes on the market. Suddenly inventory increases, causing prices to drop. Then those who purchased during the pandemic may not recoup their investment.
If a buyer is going to purchase a property at this time, they should consider all the economic factors at play and all the possible risks before purchase, if they have to compete for few properties and pay high prices. Sometimes we see dollar signs and bite off more than we can chew.
For any questions, please feel free to write in the comment section that follows. I would be pleased to answer.
Have a great week and stay safe!
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Joseph Marovitch has worked in the service industry for over 30 years. His first career was working with families from Westmount and surrounding areas, hosting children between the ages of 6 to 16 as the owner and director of Camp Maromac, a sports and arts sleep away summer camp established in 1968. Using the same strengths caring for the families, such as reliability, integrity, honesty and a deep sense of protecting the interests of those he is responsible for, Joseph applies this to his present real estate broker career. Should you have questions please feel free to contact Joseph Marovitch at 514 825-8771, or email@example.com