Millionaire’s Handbook: When one cottage just won’t do

A growing number of millionaires are juggling three or four sets of house keys.

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by Sandra E. Martin
June 26th, 2008

From the July/August 2008 issue of the magazine.

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Minimalist Thoreau would decidedly not fit in with today’s recreational property owners. In fact, with more Canadians than ever now qualifying for millionaire status (upwards of 450,000, according to the consulting firm Cap Gemini), some folks don’t see the point of stopping at just a single getaway. “The people I’m working with have a house in Toronto, they have a house in Vancouver, they have a house in Florida,” says Nichole Gibbs, an interior designer who oversees 10 cottage renovations a year in prestigious Muskoka, Ont.

For the wealthy who like skiing close by their $1.5 million-and-up retreats, Whistler, B.C., is another place where Pat Kelly, president of The Whistler Real Estate Company Limited, observes, “there seem to be an awful lot of people with more than two houses…people who also have a place in the desert or on Salt Spring Island, or a boat.”

The multi-cottage owner is no longer a rarity. Even amid the comparative restraint of Ontario’s Haliburton area, where an “entry-level” cottage goes for $300,000 and up, Royal LePage broker Anthony van Lieshout notes the phenomenon is definitely on the rise. “I don’t know if there is a limit to it,” he says. “Probably what’s fuelled it is aging demographics, the lack of stability in the stock market and the growth of the real estate market.”

For the most part, the decision to purchase any cottage, whether it’s your first or your fifth, is not based primarily on investment possibilities In fact, it can be a financial headache (see When the taxman crashes your cottage, p. 21). “It’s all about lifestyle,” reckons Douglas Gray, author of several books on vacation real estate, including The Complete Guide to Buying and Owning a Recreational Property in Canada. Tim Harris, a real estate broker in Chester, N.S., puts it more bluntly: “They do it,” he says, “because they can afford it.” Having sold more than a few ultra-luxury waterfront homes to the Eastern Seaboard’s rich and famous, his firm, Tradewinds Realty, is expanding its territory to Costa Rica and Panama, in answer to client requests for their very own place in the sun.

So far, no one’s done a study specifically on owners of two-plus vacation properties, but we can get an idea of the numbers by looking at a 2007 Royal LePage Carriage Trade report, which found that 6% of wealthy Canadian homeowners (those with $250,000-plus in non-real estate assets) juggle three sets of house keys. Further up the food chain, the report found that2% of moneyed Canadians own five or more houses.

Another recent poll conducted for Royal LePage revealed just how much money Canadians are willing to spend on a cottage. Fully 15% of those in the market say they’ll pay  anywhere from $200,000 to $500,000 — a stunning figure, when you consider the average selling price of a Canadian home is shy of $315,000. More surprising are the 2% of cottage shoppers who plan to pay $1 million or more. That’s twice the number who say they’ll spend a relatively modest $500,000 to $1 million on their next vacation property.

As for the rustic, bunk-beds-and-flannel aesthetic you probably enjoyed as a kid — that’s about as near extinction as the fivefigure cottage price tag. Kelly recalls his beginnings in the chalet business, 28 years ago, when ski fanatics slept eight to a room, and entertainment consisted of “sitting on the floor, playing cards.” Current buyers are looking for luxurious digs complete with two-car garages, spa bathrooms and wireless Internet. “For what they’re paying,” he says, “they want everything.”

And if a property doesn’t come with everything exactly the way the buyer wants it , he calls an interior designer like Gibbs, whose average cottage kitchen reno rings in at $50,000 to $100,000. What’s hot right now, she says, are painted or carefully distressed finishes and apron-front sinks. While some clients copy their city kitchens by installing stainless  steel appliances in their vacation homes, others prefer the softer look of panelled appliance covers. “People come from Toronto and they say, ‘This is what we’re doing in the city, but it’s not what we’re doing at the cottage’.” In contrast to the ultra contemporary gloss cabinets seen in many urban kitchens, Gibbs says her Muskoka clients want “furniture-like” custom cabinetry that can easily run them $35,000.

This particular part of the trend is one van Lieshout could do without. “To me, the focus has gone a bit too much to the granite countertops, and too far away from the family time and the shared food preparation,” that is the heart and soul of traditional cottaging.

But why fritter away your precious leisure hours cooking — or gardening or tinkering with the dock footings, for
that matter — when every upscale cottage community now comes complete with every professional service you could want? Kelly says his clients hire private chefs to cater their parties, and sign contracts with security companies to keep an eye on the place when they’re… well, in one of their other homes.

“They’re busy people. They come in, they want to have a good time,” he notes. “Then they leave.”

When the taxman crashes your cottage

Sell one of your vacation homes and Canada Revenue Agency will want its cut. But while you can’t escape tax, there are some strategies you can use to reduce its bite:

Plan for your end in the beginning.

Passing your property to the kids is meant to be an act of love, but it often comes at the cost of a hefty capital gains tax bill. You can spare your heirs by transferring the cottage to a trust before it appreciates in value — ideally, as soon as you purchase it, says Jamie Golombek, vice-president of tax and estate planning with AIM Trimark Investments in Toronto. You can keep control of the trust until your death, when the cottage either stays in the trust or moves into the hands of your heirs. A trust can delay your tax bill for up to 21 years, or even longer if the property is transferred from the trust to your kids.

Consider selling off any U.S. property first.

If you own property in Florida or some other sunshine state, upon your death it will also be subject to U.S. estate tax if the value of your worldwide estate totals more than $2 million (U.S.). To avoid that hit, “I would certainly say, try to sell it before you die,” advises Scott Hayman, executive vicepresident and head of client service at the Toronto wealth management firm Northwood Stephens Private Counsel Inc. If your kids are interested in keeping that home, he adds, you might consider holding it in a trust, as described above.

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