About 8 years ago, a group of my friends gave me the task of finding a cottage to rent for a week in winter.
We were all on a tight budget so I jumped on the internet trying to find a cottage rental that might fit our budget. Just to put things in perspective, the story I am telling you took place in 2011, years before I launched my www.wechalet.com website, which specializes in rentals of properties in nature.
After weeks of emailing an endless list of cottage owners over several weeks, I finally nailed down a superb log cabin located in Mansonville, near Owl’s Head mountain in Quebec, for our group of friends.
“What was the rental cost?” you are probably asking yourself.
A surprising 800$ total, for one week of holidays in the wilderness, for 8 people.
If you break it down, this comes down to 100$ a head per week per person, or – if you prefer – an attractive 14,29$ per day per friends, which was a very affordable cost for a week in a fabulous cottage in the woods.
So we got into our pyjamas.
We made pancakes.
We dressed up to go outdoors.
We skied at Owl’s Head…
And came back chalet at night at the chalet to play silly party games.
While my friends and I were getting well deserved time off, away from the big city, I came to realize something that would end up changing my life.
As far as the owner was concerned, an $800 rental income per week, amounted to 3 200$ per month, or 38 400$ annually to rent his shack in the forest.
His cabin, in all likelihood, had to be costing him a lot less than that annually in maintenance costs, which meant he was the proud owner of a rental cottage in Quebec that was self-paying for itself…
As we went through the renovations, we ended up falling in love with the place and we decided to live there full-time.
Although we were living there full-time, we began renting the house during the busiest times of the year, a setup that has allowed us to auto-pay the property progressively right from the get go.
A rental cottage that pays itself off, it’s no big deal – except that…
Since I always like to share my hard-earned knowledge with my friends, here are a few tips that I learned through this experience and that will allow you to let your next cottage pay itself off.
1. The real “DEAL” happens right at the time of the purchase
In order to buy a cottage that is able to pay itself off, you need to first analyze the two following markets:
- The housing market
- The short-term rental market
The very first priority is to get to know the market value of properties in nature in the region that interests you, by visiting sites such as Centris.ca or DuProprio.com in order to discover genuine bargains.
If the cottage you intend to buy is old and shabby, the purchase price will be lower, but this will also have an impact on the price you will be able to charge for short-term rentals.
If on the other hand the cottage is brand new, it will be more costly to purchase but this also means that you will be able to ask a lot more for rentals.
This is why, while you are exploring the housing market, you also need to assess what the short-term rental value of the cottage you are interested in might be in the region in question, using sites such as WeChalet.com
Rental prices vary between mid-week and weekends, and they also fluctuate depending on the season.
You therefore need to carry out thorough research across several sites in order to determine the genuine short-term rental revenue potential of the cottage you are hoping to acquire.
More guests = more income
Generally speaking, the more people a cottage can accommodate, the more expensive it will be to purchase.
On the other hand, you will be able to ask for a much higher short-term rental rate if your place is able to accommodate larger groups.
Depending on what you budget is, it is always best to aim for a cottage with three bedrooms and above.
Indeed, with a sofa bed and a set of bunk beds, you should be then able to accommodate approximately 8 people and above in your place.
The smaller the cottage is (two bedrooms or less), the more saturated the short-term rental market becomes, since there is an abundance of options that accommodate smaller groups of 6 or less.
This can make your property difficult to rent year-round.
The larger the cottage (5 bedrooms and over), the less offers you are likely to encounter within the large group market.
This, in turn, means that you are more likely to get large bookings that are highly profitable.
This can backfire, however, and if a cottage is too large, it can become difficult to rent out during low season, since large groups normally all travel around high season.
You should also remember that if your cottage has something unique to offer, it will have more chances to set itself aside and to stand out among the competition.
Being close to a lake or a ski hill pays off
Being close to a lake or a ski hill is highly desirable, year round in Quebec, and this is a unique of our province.
In Ontario, for example, there really are only three seasons for cottage rentals, as there are just not as many skill hills as in our province, and this considerably reduces the cottage rental revenue for our close neighbours when it comes to winter.
Being close to a lake or a ski hill will have a direct impact on your purchase price, but it will also bump up your annual rental revenue.
If your cottage is far from a skill hill, for example, it will probably become more difficult to rent in winter, and this will considerably lower your short-term rental revenue.
But, this said, if the cottage is close to a ski-doo trail, it will still be possible to rent it out even in the winter.
To spa or not to spa, that is the question
There is usually more demand for a cottage with a spa than one without.
Good to remember that a spa can easily be added to your property for as little as 10 000$.
The issue with spas, though, is that they add a number of complexities to the equation; it also adds significant maintenance costs when guests misuse the spa during the rental periods.
Imagine for example that your guests might start drinking wine in the spa and break a glass.
It could also be that you end up being too busy to change the water in the spa between rentals; your guests catch a skin bug from the water as a result and comment about it negatively and publicly in the comments section of your listing.
That really hurts.
Spas can quickly become a bit of a headache.
This is the reason why we do not personally currently have a spa on our property, especially since we are located a mere 5 minutes away from Bolton Spa.
And this has not stopped us from paying off our property with rentals, even if we have no spa.
I am still very aware of the fact that having a spa would allow us to increase our annual rental revenue.
By the way, if you are too busy to look after your spa or to carry out the maintenance yourself, there is a number of service providers out there on the market that will look after the spa maintenance for you for approximately $200 a month.
Don’t forget though that if you purchase a spa, you will need to work into your costs approximately $100 monthly for electricity costs; your spa will therefore cost you $300 a month to maintain, or $3600 annually.
You will need to consider all this very seriously before considering a purchase.
Being close to large cities also pays off
You should also be aware that if your cottage is located less than two hours away from a large city, such as Quebec City or Montreal, this will greatly increase the likelihood that you will obtain bookings at a high rental rate; the large majority of weekend guests are indeed city dwellers who are eager to escape the big city and to commune with nature and the wilderness.
Since any city dweller renting a cottage needs to face the weekend traffic when leaving on Friday and returning on Sunday, the urban hipsters usually prefer having to travel less than 2 hours by car.
You also need to remember that the further away from a large city you are by car, the more you will need to lower your cottage rental rate in order to beat your competitors and succeed in attracting the city crowds.
This can, in turn significantly affect your capacity to make your cottage pay for itself through rentals.
2. Always research the short-term rental permits before buying a short-term rental cottage
As you probably already know, Quebecers are the most highly taxed people in the world and our dear government loves to make our life as complicated as possible when you wish to put a property up for short-term rental in Quebec.
Basically, in order to self-finance your rental cottage purchase without hassle and while respecting municipal regulations, it is necessary for you to ensure that you are in fact legally allowed to put your property up for rent for at least 31 days without needing a permit.
These laws and regulations are extremely complicated and have kept changing over the last few years.
At the time of writing this article, there is a duty imposed on any cottage owner to obtain a classification statement from the Corporation de l’industrie touristique du Québec, commonly known as the CITQ, before they are allowed to legally rent out their property.
In fact, since 2018, the Act Respecting Tourism Accommodation Establishments is no longer enforced by the CITQ itself but rather by Revenu Quebec inspectors and agents, and this is clearly done with the intention of terrorising people who are daring to carry out short-term rentals illegally without a valid permit.
Raise your hand if you are confused.
Basically here is how to keep yourself out of trouble in three easy steps.
- Before you commit to buying a cottage, make sure the municipality where it is located actually allows short-term rentals.
- In order to find out if this is the case, call your municipality’s planning department; they will check the address and let you know if the zoning of the area you are interested in allows the rental of cottages for less than 31 days.
- If short-term rentals are allowed, you will then have to apply for a CITQ permit once you become the owner, and you do so by following this process.
By the way, the CITQ annual administrative fees keep rising year after year, and they have currently reached 378,20 $ + applicable taxes per property.
As an added bonus, once you have paid your fee, you will have the pleasure of getting a visit, every two years, from a Revenu Quebec assessor/ inspector who will thoroughly check out your gorgeous cottage in order to give it a rating on a one to five star scale.
During the visit, these inspectors will do as they seem fit, and will probably open all cupboards and drawers, taking photos of your dishes and even your underwear.
I know, I know, their process is extremely intrusive…
This seems particularly pointless since the classification system is extremely archaic and dates back to pre-internet days.
Will any of your guests ever read the hard copy reviews the CITQ compiles, before renting your cottage in order to determine how many stars the government has awarded you?
No they won’t.
The fact is this inspector is probably paid 100 000$ per annum, with added travel benefits, to carry out a job that is entirely disconnected from the current daily reality of the rental market.
I do have a little secret to share with you, though.
Since July 2018, our beloved government has finally decided to allow us to rent our main residence without having to obtain any short-term rental CITQ permit (and therefore no inspection is required either).
Yes, you understood correctly!
According to the new Tourisme Québec regulations, if you live in a house, a condo or a cottage and it is, for all intent and purposes, your main residence, you can now rent your home on a short-term basis without having to apply for a permit, and can do so as many times a year as you wish.
Here are a few examples of rental offers that would not require a CITQ classification:
- I am not a corporate entity and I am offering a room for rent within my main residence on weekends, throughout the year;
- I am not a corporate entity and I am offering my main residence for rent each time I am away.
Therefore, if your cottage were to become your main residence as has been the case for us, this would mean that you would become entitled to rent your property on a short-term basis to your heart’s content, without needing to apply for a CITQ permit.
As a final note, keep in mind that if short-term rental is not legally allowed in relation to the property you are interested in buying, nothing stops you from still considering renting this cottage on a monthly basis or for a whole season.
Neither of these requires a specific permit, since they are considered as long-term rental terms.
It is important to remember, though, that long-term rental is not as lucrative as short-term rental.
It will therefore be a lot harder, but not impossible, to make your cottage pay for itself through long-term rentals.
3. Always call your insurance broker before starting to rent short-term
In Quebec, the government compels cottage owners to take out a civil liability coverage of at least 2 000 000$ before the property can legally be rented out.
That said, calling your insurance broker in order to raise your coverage is not always sufficient.
You must indeed also notify your broker of any significant changes in his assessment.
Renting your cottage to a third party represents a significant change.
Not mentioning this to your broker, is like playing with fire.
If, for instance, you were to rent your cottage to tourists, and that old BBQ of yours caught fire burning down your gorgeous cottage, things could get complicated.
If your broker discovered during his investigation that the home was being used by a third party who was not really known to you, you could end up not being reimbursed or only receiving a portion of your claim.
That would be just too sad for words.
Please note that some brokers have begun to adapt to this new context of short-term rentals, and some are now offering ‘cottage rental’ policies.
According to the following article from La Presse, ‘The current recommended process, when it comes to second homes or seasonal properties, is to inform the broker that the property is being rented.
The broker will then ask the client to make rental predictions.
When the property is rented out for a period of less than 30 days a year, in most cases the policy remains unchanged, but some insurance companies may still prohibit it’, explains Nathalie Lemieux, President of JA Lemieux Assurances et Services financiers.
When a cottage owner expects to rent the property for more than 30 non-consecutive days a year, a specific short-term rental coverage will be required. This goes beyond the terms of the regular policies most owners will have.
Basically, make sure you research the insurance issue thoroughly before completing your purchase.
4. Make sure you check out property taxes
This blog post is not meant to be a tax 101 course, and even the best tax experts I have come across rarely had the answers to the tax questions that come up in these digital times.
Essentially, this is what you should remember.
Any person who rents any type of property short-term is required by law to declare their rental revenue.
Depending on your other sources of revenue, you may end up having to pay income taxes on your rental revenues.
In some municipalities, municipal taxes can be raised on the entire building if commercial short-term rentals take place within it.
Not only will property taxes be due, but you may also have to collect GST and and QST if you end up generating more than 30 000$ annually (that total also includes any self-employed income).
If you end up having to collect GST and QST on your rentals, you may also end up being compelled to collect these on the sale of your property, if you sell it down the line.
The taxation issues are very complex and I strongly recommend you to call an accountant or a tax advisor, if you are seriously considering the purchase of a cottage in Quebec to rent it short-term; these individuals might be able to answer all your questions.
5. Make sure you reinvest your short-term rental revenue into the cottage itself
After spending all your savings on the purchase of your cottage, paying the CITQ permit, purchasing an adequate insurance policy, and paying all the necessary taxes, you may well have little left to put your new property through the make-over of the century.
It is nevertheless a fact that when a cottage is stunning, people are ready to pay big bucks to get the pleasure of staying there.
The more beautiful your cottage is, the more you will be able to charge, and this will help you put more towards paying off the purchase itself.
Thankfully, using your short-term rental revenue, you will be able to reinvest your cash flow back into the cottage in order to make it irresistible regardless of the season.
And the good news is that all renovation expenses are usually fully, or at least partially, tax deductible.
So you will have to reinvest into the property if you want to eventually maximize your rental income.
Again, a good accountant or tax expert will be able to give you advice on how to optimize the strategic use of your renovation expenses for tax deduction purposes.
I hope these tips have given you a better idea of how to purchase a cottage in Quebec and let it pay itself off.
I know it can all seem extremely complicated at first, but don’t worry: it’s feasible.
I have created WeChalet specifically for the purpose of helping property owners to maximize their short-term rental revenue.
If you already own a cottage or know people who own one, don’t forget that you are able to advertise it here for free.
I even offer a free online course which teaches you how to create the best possible listing to ensure you score the maximum amount of rentals each year.