Les and Jennifer Schmidt.Supplied
Les and Jennifer Schmidt love the snow and the mountains and all of the outdoor activity that comes with them. So it’s little wonder the mountain town of Canmore is a favourite destination for the couple from southern Alberta.
“For the last five years, we have just been saying, ‘This might be a nice place to retire,’” says Mr. Schmidt, an entrepreneur in his late 50s.
While not retired yet, the couple recently decided to purchase a condominium in Canmore.
“We had casually been looking at prices for the last two years,” but in the last several months, property prices accelerated to the point where “we decided to jump in,” he says.
The couple plan to eventually live in the condo full-time once they retire, selling their current home in favour of their recreational property. It’s a retirement dream shared by many Canadians.
The pandemic, years of strong investment returns, soaring home values and low-interest rates have helped make this dream more attainable than ever for retiring Canadians, says Carissa Lucreziano, vice-president of financial and investment advice at CIBC in Toronto.
“Based on reporting across the real estate industry, we know there is increased demand for recreational properties from those nearing retirement and those currently retired.”
Royal LePage’s 2022 Spring Recreational Property Report and Forecast points to this growing demand in Canada. For example, it found prices for a single-family detached home increased about 26 per cent in 2021 from 2020. The report further points to potentially as many as 1.8 million baby boomers considering buying a recreational property in the next five years.
Among the most in-demand locations is Canmore, where prices are up more than 32 per cent year over year – leading to Alberta having the highest overall values for recreational properties in Canada with the average price of a detached home at more than $1-million. Canmore condominiums had an average price of about $620,000, up about 14 per cent from 2020.
Many Canadian retirees are also looking to buy property in the U.S., says Evan Rachkovsky, director of research at the Canadian Snowbird Association.
“We have seen increased interest in pre-retirees and members of the association with regards to purchasing property in the United States,” he says, noting interest has quickly returned to pre-pandemic levels once most travel restrictions were removed.
Be it in Canada or abroad, retirees and near-retirees have much to consider when purchasing a recreational property, Ms. Lucreziano says.
“There are a lot of life pieces that need to fit,” she says.
The biggest factors are financial: It’s not only a question of whether a retiree or near retiree can afford to purchase a second property but also how they want to purchase it.
Ms. Lucreziano says most people have a few options, from leveraging existing equity in their principal residence to taking out another mortgage to buying the property with cash.
“Others are downsizing from their family home and using the difference to buy an additional property,” she says.
Winnipeg-based certified financial planner Doug Nelson recommends individuals go through a multi-step evaluation that includes examining the impact on their net worth.
“When people move money from the investment portfolio, which would have been used to generate income, to purchase a cottage, then income goes down and expenses go up,” says the adviser with Nelson Financial Planning Corp.
Individuals need to plan beyond the immediate financial impact and forecast the effects on cash flow several years ahead, factoring in rising property taxes, travel costs and maintenance, Mr. Nelson says.
Tax and estate planning also become more complex, often requiring professional advice, Ms. Lucreziano adds.
“When you’re looking at purchasing a second property in Canada, for example, you need to consider which property will be your principal residence and a plan to pass on both assets as part of the estate,” she says, referring to the taxation rule allowing individuals or couples to designate one property their principal residence, which can be sold without taxes owing on its appreciation in value.
The purchase of a U.S. property involves even more considerations. Among them is the substantial presence test, whereby Canadians spending more than half the year in the U.S. may have to file a U.S. tax return, Mr. Rachkovsky adds.
Complexities aside, about one million Canadians are snowbirds with many owning U.S. property, he notes. “There are over half a million Canadians who own property in the state of Florida alone.”
In Canada, Canmore has long been a favourite retirement destination, but demand increased during the pandemic driven by a different type of retiree, says local realtor Brad Hawker, an associate broker at Royal LePage Solutions.
“People retiring today don’t see themselves living a quiet, sedentary retirement like their parents did,” says Mr. Hawker, who has been selling real estate in the area for more than two decades.
“They lead very active retirements, and this is a great location for that,” he says.
Still, Mr. Nelson suggests that people considering purchasing a recreational property test drive the idea first, renting for a year in their preferred location. It gives them time to consider alternatives that weren’t around even a decade ago, like Airbnb.
“Why limit yourself to a second home in one location when you can have much more flexibility for less cost?”
Being frequent visitors to Canmore, the Schmidts don’t feel the need to rent first once they retire, confident in their decision to purchase even if it was sooner than planned.
“Whenever we’re there, it just feels right,” Ms. Schmidt says. “It’s kind of our place.”
Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Read more here and sign up for our weekly Retirement newsletter.