June 29, 2011

Purchasing a secondary residence

Are you thinking of purchasing a secondary residence? What kind of home will you be looking for? Are you dreaming of a condo near a stream or a log cabin at the base of a mountain? These are probably the questions you will naturally ask yourself. Take the time to evaluate your specific needs and the use you will make of this residence. Once these elements are established, you can start your search for a property. Your criteria for this second residence will most probably be multi-faceted taking into account for example, the location, your ability to rent out this home, and even what its resale value would be.

Taking into consideration that the down payment required for the acquisition of a secondary residence is generally 5%, it is an accessible dream. It is important however to assess your financial means, because some lenders can apply requirements that are quite restrictive. There are several ways to finance a second property, including using the value or equity gained on your first property. Do not hesitate to contact your mortgage broker to inform yourself on the different options.

Find out about the water supply. Does the water come from a lake, an artesian well, or a surface well? It is important to know because the water’s quality can be affected by these factors. If the water comes from a lake for example, the chances that it might be contaminated are greater than if it originates from an underground source. You can find more information on this subject on the Website of the ministère du Développement durable, de l’Environnement et des Parcs: http://www.mddep.gouv.qc.ca/eau/inter_en.htm. You should also be aware that a water test will be required by the lender for all properties whose water supply is not municipal.

Another point to be aware of is the sewage system. If the property is not connected to a municipal sewage system, it is important to learn more about the operation of septic tanks, the installation of these systems and the provincial regulations, you must be aware of. If you rent your property for a short term for example, you must know whether the capacity of the septic tank is sufficient for the number of people inhabiting the home. To learn more about installation, maintenance and repair of septic tanks, visit the Website: http://www.cmhc-schl.gc.ca/en/co/maho/gemare/gemare_009.cfm.

Also, look at the property’s foundation. Is it made of concrete blocks? If this is the case, pay close attention to water seepage marks, as you may have to install a sealing membrane. To avoid these problems, choose a property with a poured concrete foundation.

You should also learn more about the compliance of installed fireplaces. The regulations are generally the same as for any other property. Don’t forget to ask your insurance company for an estimate vis-à-vis this type of property. Some properties, due to their distance (300 m from a fire hydrant and 8 km from a fire station), are more expensive to insure. In addition, if you want to rent out your property, it is important to mention it to the insurers. Different rates may apply according to the rental terms and conditions.

Also, if you buy your second property to rent it out, you should take the time to learn about the laws. The rental of a property is classified by your intent to rent it out on a short or long term basis. The short term (usually 31 days or less) is the most restrictive. The property must be classified by the Corporation de l’industrie touristique du Québec (CITQ) and it must be located in a commercial zone that allows for it.

Don’t forget that to maximize the value of resale or rental of your property, there are a few more points to investigate. Check out the sun’s exposure, particularly if you’re in a mountainous region. A large exposure will add value to your property. Also assess your access to the water. Does it have a tolerated access or a legal servitude allowing access which is recorded in a notarial deed? Furthermore, pay attention to the health of the waterways, including the lakes. An excessive accumulation of nitrogen and phosphorus could hinder your ability to drink or bathe in the water. To check out the health of the waterways near the property, you can visit the Website of the ministère du Développement durable, de l’Environnement et des Parcs: http://www.mddep.gouv.qc.ca/index_en.asp. Finally, evaluate the amount of maintenance required for the upkeep of the property. Dependent upon your needs a condo might be a good solution to avoid mowing the lawn, cleaning the swimming pool, etc.

Finally, be aware that at the time of resale of a secondary property there are no exemptions for capital gains taxes as opposed to exemptions allowed for the sale of a primary residence.

In short, the purchase of a second property is as important as the purchase of the first. It is a big investment which you can enjoy for many years. Never neglect the preparation process and do not hesitate to ask advice from professionals who would be happy to help you.

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Jack Lehrer is a successful mortgage broker in Montreal who has been in the realm of customer service for over 25 years. Treating his clients with the respect they deserve is what has propelled his business. His satisfied clients not only return, but pass his name on to their friends. His greatest pleasure comes from helping a client realize their dreams. As a Mortgage Broker he is able to make your life easier. He searches for the best mortgage terms and rates from over 20 financial institutions to find you the right mortgage. If you are planning to renovate, buy a house or refinance your mortgage, then he is your best choice for all your mortgage needs.

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