Invest in renting a chalet Over the past few years, it has become increasingly popular among Quebecers, and for good reason: economic growth, a pandemic and a boom in Quebec’s private accommodation sector have prompted Quebecers to take vacations in our beautiful province.
Contrary to many people’s beliefs, owning a rented chalet is not a classic real estate investment.
Its acquisition requires in-depth knowledge of local markets and revenue forecasts.
Here are some things that any potential buyer of a rented cottage should know before making an offer and starting the buying process.
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Is a good investment in a cottage?
When investors take the right steps to invest in a rented cottage, it becomes a excellent source “Passive income”.
Vacation rental platforms (such as Airbnb or Booking.com) are a great way to earn income from short-term rentals, and if your property is in high demand, you will see even greater profits.
There are several advantages to owning a rented cottage.
Airbnb continues to grow as more and more properties appear in applications in recent years. Thanks to the convenience of these applications, finding and marketing vacation homes has become more convenient than ever.
In turn, the number of investors interested in renting cottages has increased sharply.
Here are some of the reasons:
- Higher income: The main and most attractive advantage of rented cabins is increased income. An Airbnb host can earn an average of $ 1,000 a month. If you have cottages in the most popular areas of Quebec, this income can grow exponentially.
- Arrange your own vacation: Investing in rented cabins gives you the opportunity to have your own perfect vacation whenever you want. Use the apartment for any special event, such as birthdays, parties or family gatherings. Try investing in an area you want to visit over and over again. Convenience speaks for itself.
- Provide your finances and nursing home: Investing in rented cabins is a great way to insure your future health care expenses, travel, emergencies, and more. Or, if all goes according to plan, you can leave it as a nursing home. In any case, investing in rental cottages can become a reliable asset in the future.
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How to finance the purchase of a chalet?
1. First installment
If you do not live in the house for at least a year, you will need a down payment of 20%. However, if you live in the same apartment and meet all three criteria, you are entitled to a minimum down payment of 5% to 10%.
You can make a down payment of at least 5% on the first $ 500,000 of the value of your property.
However, any value from $ 500,000 to $ 1,000,000 requires a minimum down payment of 10%.
For example, a property worth $ 800,000 requires an initial payment of at least $ 55,000 (500,000 * 5% + 300,000 * 10%).
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2. Maximum depreciation period
If your down payment is less than 20% for investment property, the maximum depreciation period will be 25 years.
However, if you make a payment of 20% or more, you can take advantage of a depreciation period of 30 or 35 years. This is one aspect of an investment property mortgage where it does not matter whether the property is occupied by the owner or not.
3. Qualification criteria
To obtain a mortgage loan for investment real estate, 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 certificates or a two-year appraisal notice T1 General (self-employed) è
- evidence of the existence of tenants, if any
- zoning documents confirming that you are buying residential, not commercial real estate.
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4. Bank vs. Mortgage Broker
Just like you took out a mortgage for your primary residence, you can ask a bank or mortgage broker to help you get pre-approval and then approval to finance your investment property.
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 knowledge of the specific financing conditions required by different lenders.
Another benefit of working with a mortgage broker is the impact on your credit rating. Indeed, he will only need to read your credit report once, he will go around the market for you and 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: the lender from whom you receive financing will pay a commission to the mortgage broker.
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Invest in renting a chalet this is a great way to access passive income. However, going headlong without a plan is not enough.
Rather, be careful and know what you are going to do before you decide. With proper training, you may find that your investment is worth it.
Those who are willing can find that their decision to invest in a rented cottage can pay off over the years.
Thank you for reading our article!
What do you think about renting a chalet? Share your opinion in the comments below.