Invest in a rented chalet has become increasingly popular among Quebecers over the past few years, and for good reason: economic growth, the pandemic and the boom in private housing in Quebec have encouraged Quebecers to holiday in our beautiful province.
Contrary to what many investors think, owning a rental chalet is not a classic real estate investment.
Its purchase requires a thorough knowledge of local markets and revenue forecasts.
Here are a few things any potential homebuyer should know before making an offer and starting the buying process.
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Is a cottage a good investment?
When investors take the proper steps to invest in a rental property, it becomes great source “passive income”.
Vacation rental platforms (like Airbnb or Booking.com) are a great way to generate income from short-term rentals, and if your property is in high demand, you’ll make even more profit.
Renting a cottage has a number of advantages.
Airbnb continues to grow as more properties appear on apps in recent years. The convenience of these apps has made finding and marketing vacation rentals easier than ever.
In turn, the number of people interested in investing in cottage rentals has increased dramatically.
Here are some of the reasons:
- Additional income: The main and most attractive advantage of renting houses is an increase in income. An Airbnb host can earn an average of $1,000 per month. If you have cottages in Quebec’s most popular areas, your income can increase exponentially.
- Get yourself some rest: Investment in rented houses allows you to have the perfect vacation at any time. Use the property for any special occasions such as birthdays, parties or family reunions. Try to invest in an area that you want to visit again and again. The convenience speaks for itself.
- Protect your finances and nursing home: Investing in rental cabins is a great way to insure your future expenses for health care, travel, emergencies, etc. Or, if all goes according to plan, you can choose to keep it as a retirement home. In any case, investment in rental cottages can be a reliable asset for the future.
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How to finance the purchase of a chalet?
1. Down payment
If you have not lived in the home for at least a year, you will need a 20% down payment. However, if you live in the same home and meet all three criteria, you are eligible for a minimum down payment of 5% to 10%.
You can make a down payment of at least 5% of the first $500,000 of your property value.
However, any amount between $500,000 and $1,000,000 requires a minimum down payment of 10%.
For example, a $800,000 property will require a down payment of at least $55,000 (500,000 * 5% + 300,000 * 10%).
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2. Maximum depreciation period
If your down payment on an investment property is less than 20%, the maximum depreciation period is 25 years.
However, if you make a payment of 20% or more, you can take advantage of a 30 or 35 year amortization period. This is one aspect of an investment property mortgage where it doesn’t matter if the property is occupied by the owner or not.
3. Qualification Criteria
To obtain a mortgage loan for an investment property, you need to provide the lender with the following documents:
- contract of sale
- confirmation of a significant down payment
- proof of regular income, usually in the form of a letter of employment and pay stubs or a two-year evaluation notice T1 General (self-employed)è
- evidence of tenants, if any
- zoning documents confirming that you are buying residential property and not commercial.
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four. Bank vs. mortgage broker
Just like you took out a mortgage on your primary residence, you can ask a bank or mortgage broker to help you get pre-approved and then approved for investment property financing.
In the case of an investment property mortgage, it may be even more important to consider working with a mortgage broker because of their experience with other investors and their knowledge of the specific financing terms required by different lenders.
Other benefits of working with a mortgage broker are the impact on your credit score. Indeed, he will only need to look at your credit report once, he will bypass the market for you and will look for a product and rate that matches your financial situation. The best part is that you do not have to pay him for his services: it is the lender from whom you receive financing that will pay the commission to the mortgage broker.
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Invest in a rented chalet this is a great way to access passive income. However, it is not enough to start headlong without a plan.
Rather, do your due diligence and find out what you’re getting yourself into before you take the plunge. With proper preparation, you may find that your investment is worth it.
Those who are ready may find that their decision to invest in a rental cottage can pay off for years to come.
Thank you for reading our article!
And you, what do you think about renting a chalet? Share your opinion in the comments below.