Canadians have for generations viewed real estate investment as a reliable path to building long-term financial success and funding their retirement.

Cottages, in particular, have offered a unique blend of emotional and financial returns: a place to create family memories and, historically, a promising secondary investment. But in today’s economic climate, cottages, once considered a sound investment, now raise a question: Will purchasing a cottage leave a positive financial impact or be just an expensive luxury?

The answer has many Canadians rethinking their goal of cottage ownership as they weigh the return on memories against the return on investment.

Cottage time

Just a few years ago, at the height of the COVID-19 pandemic, demand for cottages soared as more Canadians embraced the flexibility of

remote work and looked to spend more time in nature with loved ones. Whether new buyers or legacy owners, the pandemic allowed for cottage usage to reach an all-time high, with many beginning to use these seasonal properties as their primary residences.

But times have changed. With the increase of return-to-office mandates , rising interest rates and a higher cost of living, many cottage owners are questioning whether they have the time and financial flexibility to justify keeping a secondary property.

Secondary properties often come with their own set of challenges, including the strain of having multiple residences tied up in fixed assets. In other words, cottages usually symbolize freedom and flexibility, but having one may mean the opposite for your portfolio.

In some regions, even principal residence values are declining, prompting homeowners to reassess the financial burden of owning multiple properties. The reality is that real estate doesn’t always offer a positive return on investment.

House poor

The belief that real estate investment always leads to long-term gains has been challenged by an increasingly volatile market, with ever-changing regulatory, policy and tax rules. These factors are causing many Canadians to rethink their idea of what makes a successful portfolio and to reconsider their stance on property ownership altogether.

Owning real estate can often lead to an increase in costs related to upkeep and maintenance, in addition to the price of the property.

Secondary property owners specifically need to be prepared to face the possibility of hidden or unexpected expenses relating to multiple properties. Costs such as mortgage interest, property tax, insurance, maintenance, utilities, furnishing, repairs and capital gains tax upon sale are often not considered until the bill arrives.

Careful planning to fully consider all financial outcomes is an important first step in ensuring there are no surprises after purchase. This should include value-based assessments to help you determine if a secondary property aligns with your lifestyle, overarching goals and even little things such as whether you would enjoy the commute time.

Completing this will allow you to be aware of all possible expenses before the bill arrives, enabling you to enjoy your purchase.

For love and real estate

Before falling in love with a cottage, ensure you have done the proper planning and research to assess whether the property is right for you and your portfolio. This step can be done by working with an adviser to see what adding this property to your portfolio will look like.

This is an eye-opening step that explores the price of the property as well as all the other expenses that could occur on a monthly or yearly basis. This step is essential in ensuring that this property aligns with financial goals for years to come. Only after completing this step and building this plan should you pursue a pre-approved mortgage.

The value of a cottage in your portfolio ultimately depends on your lifestyle, finances and long-term goals. But deciding that a cottage isn’t right for you, whether that means ending your search or selling an existing property, doesn’t mean you have to give up the benefits of escaping the city.

With options such as Airbnb and vacation rentals more accessible than ever, many Canadians are stepping away from the idea that cottage ownership is the only option. For some, a secondary residence may even stand in the way of achieving other goals altogether, such as annual vacations or focusing on other aspects of their portfolio.

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In many cases, renting a vacation property may give you all the benefits without any of the stress or financial burden of taking on multiple loans.

There is no perfect answer to the question of whether you should purchase a cottage since the decision depends on your time, flexibility and portfolio. However, in deciding whether a cottage is right for you, it’s important to ensure you are making the purchase because it aligns with your lifestyle rather than as an investment strategy.

Real estate is no longer the automatic wealth builder it once appeared to be, so before purchasing or holding onto a cottage, ask yourself whether the potential memories are worth the potential cost.

Rebecca Broadley is a senior wealth adviser at Richardson Wealth.