Announcer: Welcome to the "How to Rent Vacation Properties by Owner Podcast" series. Your host is bestselling author and vacation property expert Christine Karpinski. Today's show is brought to you by HomeAway.com, the world's most complete marketplace for vacation rentals. Join the network at HomeAway.com.

Christine Karpinski: I'm Christine Karpinski, thank you for listening to the "How to Rent Vacation Properties by Owner Podcast." [Instrumental music background] Today's guest is John Jarvis; he lives in Huntsville, Ontario which is in the Muskoka region just above Toronto, a very popular destination for a lot of people from Canada.

He is a real estate broker with Home Life Muskoka and they started their brokerage firm back in 1989 but he has been selling real estate in that region since 1984. So, he's got 24, almost 25 years of experience in selling real estate in the Muskoka region.

So, we are going to talk to him a little bit about Canada. We have not spoken to anybody about Canada as of yet and it will be fun to learn a little bit more about the Ontario region.

John, thank you so much for joining us.

John Jarvis: Thanks Christine, good to talk to you.

Christine: So, tell us a little bit about your region.

John: Well, the region is approximately 100 miles X 150 miles, located approximately at a two hour drive north of the greater Toronto area, if you look on the map, just north of Lake Ontario.

Christine: Got you.

John: Yes and the region is very pristine, thousands of good clean lakes, a network of lakes.

Christine: Thousands of lakes!

John: Yes, thousands of lakes. We have good road systems primarily comprised of three larger towns which are Huntsville, Braisberg, and Graven Hurst. And then to the northeast it's bordered by the world famous Algonquin Park.

Christine: Right, right.

John: Yes.

Christine: So, obviously this is a really popular destination for people from Toronto and I imagine probably even some people from Ottawa and Kingston and stuff like that.

John: It's actually very popular, of course, with Toronto area but there's also a lot of Western New York, Buffalo, across to Ohio and then across the northeastern US actually.

Christine: Oh, neat, neat.

John: They come up to this area quite often and have a lot of family to establish.

Christine: Right, and I have been to that area...my husband and I when we first got married, we used to go up there quite a bit during the summer time because we lived in Northeastern New York.

John: Right, there you go.

Christine: And it is really pretty.

John: It is.

Christine: The lakes are beautiful, little cold; those lakes are cold but just gorgeous lakes and fun towns and lots of antiquing, lots of fun things to do up there.

So, anyways, tells us a little bit about the vacation home market up there.

John: Well, the vacation home market has been, I would say, very strong. It's been strong over the last...well, since I started in 1984 or 1985. It's been nothing but climbing. And as far as the values go, it has been good. There's been lots of development, lots of new lakes that have been developed over the years -The reasons why it warmed up since it needed to keep growing. The market is very strong I would say.

Christine: When somebody comes up there to purchase a vacation home. What are they looking for, I mean since you have 10000 lakes? Do they need to be directly lakefront?

John: I would say waterfront is key because they are always looking for waterfront and then, beyond that, I would say price range in what they can financially qualify for as they begin to cater on where to start looking.

And then beyond that, number one waterfront, number two affordability, how much they want to pay, and then, number three would be the overall condition of the building.  And people prefer different exposures whether southern exposure, western exposure. Another factor could be if it's a big boating lake or a big boating chain of lakes versus a small pristine lake with quieter exploration. That's another factor, yes.

Christine: Now, what about trends, you've been in this market for a long time. What sort of trend have you seen in the market?

John: Good question, over the years, I've seen the quality of construction of new cottages has grown in leaps and bounds.

Christine: Yes, yes, it's really funny the cottage that we used to stay in all the time was not winterized.

John: Right.

Christine: And I think it was quite old. I think it was probably built in the 40's or 50's.

John: Right. Well, exactly, and the term cottage doesn't really apply to today's cottages that are being built because we are talking very high quality of construction. I haven't seen a cottage built under maybe 15 hundred and above, 15 hundred, three thousand square feet; we're talking a very high architecturally designed type of buildings.

Lots of natural stone, lots of natural wood, lot's of primary pine. We're talking very high, and I've seen the quality of construction just grow leaps and bounds.

Christine: Well that's kind of nice.

John: The little cottage that you were staying in, they don't build them like that anymore.

Christine: [laughing] But they are kind of quaint. [laughing]

John: Yes they are.

Christine: And I imagine you are seeing lots of people buy up those old cottages and sort of fix them as well, right?

John: Absolutely. We're seeing people that have maybe bought a cottage in the 50's, 60's, and 70's and they lived in the GTA areas, Greater Toronto Areas. Now they are retired, they filled their holdings in Southern Ontario and move up to these cottages and they convert them over to year round homes. This is the big trend.

Christine: Right, right.

John: That's the trend over the last...I would say 15 years.

Christine: Well, yeah, it's got to be significantly less expensive than Toronto. [laughing]

John: Absolutely.

Christine: Those are pretty pricey. Now, what about loans, here in the United States there's all sorts of stuff going on with regards to our mortgage industry, has there been an impact there as well?

John: Not really, it was typical A lenders, we call them A lenders but also B, D. These Canadian chartered banks, I believe there are 15 and 20 Chartered banks and they are all very strong, doing well. Another trend, Christine in the last five years, they've increased their ratio that they will lend, I think, now they are lending up to 75%...

Christine: OK.

John: If it's second resident..

Christine: Right.

John: ...and then if these folks move in for them, they will lend as high as 90-95%.

Christine: Oh, wow! Big difference.

John: The other thing is they have representatives from these banks that are actively up there talking to real estate brokers and willing to lend money.

Christine: That's a good sign! [laughing]

John: Now the secondary lending's, the B lenders and the C lenders, I think, they have been affected by the US bit of problems.

Christine: Right, right.

John: Yeah, yeah.

Christine: Now, who is the typical buyer that comes up there?

John: The typical buyer, I would say, you're talking younger families. I would say the typical buyer would be 40 and above.

Christine: Hmm...

John: They've gained equity in their home, have some savings, they like this area, they can get in at entry level, you're talking perhaps a decent cottage, you're probably talking $300,000.

Christine: Hmm...

John: I would say 40 and above. I would say between the leading edge baby boomers to 40 to 55 age bracket.

Christine: Why are they buying? Are they using it mainly for their families or do they have intentions of renting? What are you finding?

John: I was finding personal use. It's always been personal use. Investment, they know the market, that there's an old saying around here, they're not creating any more water fronts.

Christine: Right [laughs]

John: So, they know what the limit of commodity is. So, they feel that in some cases, it's better than a savings plan in the bank. And then, a growing trend has been the rental market. You never heard of that 15 years ago, but in some cases now, it's a growing trend. So, yeah, they will be renting it generally through a private rental agency.

Christine: Gotcha. So, they're using rental agencies or we have some on our sites, like VRBO.com or HomeAway.com, where the owners are renting them directly. What kind of rental season is up there? I mean, OK, I think, the Great White North. I know where we used to travel.

John: Right.

Christine: We used to go up to the Georgian Bay to Collingwood, it was. There was also a ski area up there. So, that was more year round. Are there ski areas all throughout Muskoka or is it primarily in summer?

John: There are two types of skiing. Primarily, Huntsville, as a smaller facility than where you were. You were at Blue Mountain.

Christine: Hmm..

John: In Huntsville, it's called Hidden Valley. It's the great, great ski hill for the intermediate skiers, snowboarders and younger families.

Christine: Gotcha.

John: So, I think, there's approximately 200 chalets back home in that region, that's about Huntsville. So, of course, those places are booked all through the winter with skiers.

Christine: Gotcha.

John: The rest of Muskoka primarily is cross country, or they call it "Nordic type skiing." We have good different areas, good public areas, good network of trails. Of course, the lakes are good to ski on. And then, the other big industry through the winter is snowmobile, the Ontario snowmobile industry.

Christine: Gotcha.

John: That actually is larger; it's quite a bit larger than the skiing industry. So, these cottages, they're rented through the summer, obviously, and rented a good two months through the winter.

Christine: Oh, wow! That's great! That's great!

John: Yeah.

Christine: I mean, to have that year round rentals certainly makes it easier to bite off. I looked on VRBO and HomeAway and it looks like on the low end, they're rented for probably around $900 to $1000 a week.

John: Correct.

Christine: And then, on the high end, certainly there's some that are renting for much more.

John: Right, right.

Christine: You can always go up.

John: Right.

Christine: But if you figure even on the low end, $1000, if they rent the 12 to 15 weeks during the summer, that's $12,000 to $15,000.

John: Right.

Christine: And then, they rent some extra weeks during the wintertime even if it's only for six weeks. I mean, you're talking of upwards of $20,000 to 25,000 worth of rental revenue.

John: That's right.

Christine: That's a lot of money to turn away! [laughs]

John: That's right. Especially if the cottage is sitting empty and the owner is not using it.

Christine: Right. And a lot of times, your occupied cottages are going to have less problems than a totally unoccupied cottage.

John: Good point. You're right.

Christine: Yeah. So, now, with regards to the market, you said you could get in around $250,000 to $300,000. What is the midrange price? If I wanted to go in, I wanted to buy a place that was winterized so that I could be renting it full year round and want to be close to both sorts of activities, the summer activities and the winter activities, what would I expect to pay?

John: You're going to pay in the half a million range.

Christine: OK.

John: You're going to pay maybe as low as $475,000 to $600,000.

Christine: OK.

John: You'll find yourself a good quality lake, a larger lake and a good building, a good year round building, three to four bedrooms. What's also important is a good docking system.

Christine: Gotcha.

John: So, you want to get yourself a good docking system. Possibly even a boathouse with that. That would be a good midrange cottage.

Christine: OK, and high range, I imagine you go up into the millions, right?

John: Possibly.

Christine: Everybody does [laughs]

John: Oh, absolutely. It's not uncommon, a million up to four to six million.

Christine: Wow!

John: In some cases. Yup!

Christine: Oh, can you hold on one second? We just need to take a break for a word from our sponsors.

[Commercial Break]

Christine: And now, back to our show. Now, what percentage of the buyers are you seeing buying it with the intentions of renting?

John: I would say there's an increase in trend, for sure. I would say in the 10% to 15% bracket.

Christine: What I found too is there are certain people who buy it with the intentions of renting straight away. And then, there are the people that I call "once the honeymoon period is over," they own it for a few years, four to five or six years and then they decide, "Gosh! I'm not using it as much as I thought" or "It's costing me a lot of money for maintenance" or it's time to newly maintain, "I need a new air conditioner" or whatever and that rental revenues can help offset those costs. So, we see sometimes a lag between purchasing and renting.

John: Right. The other thing I find on that note, and I find this with my own family cottage. We find that it's used by a lot of family and friends. We call them "obligation type guests."

Christine: Right.

John: Where they come and use your cottage for no charge.

Christine: Ah.

John: And then, after a while, you're like, "You know what? Maybe they're getting a lot of usage, more than I am and they're not paying for it."

Christine: Right.

John: So, sometimes, that converts over to rental.

Christine: Yeah. I mean, that's always a sticky situation. As soon as you buy a vacation home, everybody's your best friend.

John: Absolutely.

Christine: Every cousin comes out of the woodwork.

John: That's right.

Christine: I own vacation homes as well, so I know what it's like. For a while, I didn't charge friends if they would go last minute and it wasn't booked. But, then I've gotten to the point where I have to charge them because I noticed a significant increase in my power bills and the water bills and all that if somebody's in there.

John: Absolutely.

Christine: So, I have started charging. Although thankfully, I'm booked most of the time with real renters [laughs]

John: Right. There you go.

Christine: So, yeah, it doesn't come into play as much. But, are there laws regarding... I mean, like in the US, if you own a second home that you rent out and you can only use it for 10% or two weeks a year yourself in order to be able to claim it on your income taxes as a business. That is the way to get the most amount of return on your investment. You can get the most write offs that way.

John: Oh I see. I see.

Christine: Is there any stipulations with regards to, in Canada obviously, your tax laws? Obviously our income taxes are different.

John: Well I hire those people. I have some good tax consultants and I don't profess to be a tax expert.

Christine: Gotcha! [laughs] But no general laws?

John: I don't think there are. I think it has to do with your personal structure and how you take title to that cottage. If you take title as just a personal cottage, to tell you the truth there is probably a lot of unclaimed income that you couldn't see.

Christine: [laughs] We don't want to know about that.

John: Yeah, but as far as using it as a write off, I think, it would really depend on if you took title as an individual or took title as a corporation.

Christine: Right. So, the key is to talk to your accounting professionals or your attorney prior to purchasing the property so they can easily set you up properly if you know you are going to rent.

John: That's right.

Christine: Here, in the US, you can rent up to two weeks without, you get basically grace. You could rent up to two weeks without having to pay any income tax.

John: OK.

Christine: So it's kind of a neat little niche within there.

John: I see. I see.

Christine: Is there anything that perspective buyers need to know? I mean, I'm thinking you own on lakes and is there any sort of government protection on those lakes? Any red flags that need to go up when people are looking for properties in your area?

John: The thought just occurred to me, I think, beside the tax implication for renting your cottage, the other aspect I know of is insurance.

Christine: Gotcha.

John: You do need some extra coverage for insurance. I know that.

Christine: Right.

John: As far as government regulations, of course when it comes to the lake and buying a cottage, the main limiting factor to lake development is when they talk about pressure on the lake. Pressure on the environment or septic system because I would say about 99% of all cottages are not on a municipal sewer or water so you are dealing with individual septic systems in the ground.

Christine: Right.

John: When we sell a cottage, especially a cottage over ten years of age, we will have that septic system fully inspected to make sure it is operational and operating correctly because it has to be at a certain size, it has to be a certain distance back from the lake. They want absolutely nothing leeching into the water system at all.

Christine: Right.

John: They will shut you down if you have a poorly operating septic system. They will shut you down. District does do spot inspections on a regular basis.

Christine: Well that's actually kind of good news you know?

John: Yes. They are protecting the environment. It's a good thing.

Christine: I don't want to swim in a lake where everybody's septic systems are leeching into it either.

John: No. That's right.

Christine: So that's kind of nice. I would imagine because the home sites are at equal level with the lake that it would be a little bit more difficult to have proper leech fields and all that stuff for your septic systems.

John: Well the other issue, we have a lot of beautiful exposed granite. A lot of exposed rock here, so in a lot of cases when they are building these cottages they actually have to bring soil in actually.

Christine: So it does definitely pose a problem. When we were at the cottage life show, we saw that there was a lot of booths on composting toilets.

John: Yep.

Christine: The thought of a composting toilet to me is very bizarre, however I did go and stay at a very beautiful resort in the Mayan Rivera in the jungle and they had all composting toilets and I will tell you, your initial thought is out house, oh no! These things don't smell at all!

John: No.

Christine: It's amazing. So, is that also somewhat of a common thing to find in cottages up in Muskoka?

John: No I wouldn't say common. Composting toilets are, I would say to the West of us, Christine, in Georgian Bay. That Georgian Bay area, I guess when the glaciers came through they just scraped the soil. There is a lot of flat, smooth rock. In Western Muskoka it is primarily like that.

For some people they just can't build. They will get the cost of a septic system from a contractor that could be $30,000 to $40,000.

Christine: Wow.

John: Then they will say, you know what, I'm going to go to a composting toilet. So, a lot of times it is cost driven.

Christine: Right.

John: That is why they would have it.

Christine: Yeah, they are pretty expensive. Wow.

Well you know John, thank you so much. Is there anything else that you would like to add before we close about buying vacation homes in your area?

John: I would add that it is a lot of money for a second home. It is a lifetime investment so I would probably advise from a buyer's point of view that I would deal with a qualified broker who has had a minimum of, I would say, ten years in selling cottages and lives in the area.

Christine: Great advice. Yeah definitely brokers living in the area are very important because they know. They're reading the newspaper everyday; they are shaking hands with a lot of the government people.

John: Well they know people on the lake, they know their neighborhood, they probably know 30-40 lakes so they are all different. There is Pyatt Lake, Rambunctious Lake, there are lakes that are shallow and weedy and there are lakes that are deep and cold.

So we find a lot of realtors that are from the Toronto area or far flung areas and they really don't have a clue about everything we've discussed.

Christine: Right.

John: I would say deal with a local broker who lives in the area and has a minimum of ten years experience.

Christine: Absolutely.

John: You can't go wrong.

Christine: Absolutely. Just for everybody who is listening, I am going to give John's website address. It's http://www.homelifemuskoka.com. Its w w w.h o m e l i f e m u s k o k a.com. If you would like to reach John by phone, his phone number is (705)789 1737. Again the phone number is (705)789 1737.

John thanks so much for joining us and for sharing all of your knowledge and information. I'm sure we only touched the tip of the iceberg with this. If you have any other questions regarding Muskoka or buying in Canada, feel free to contact John directly.

John: Thanks Christine.

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