Recreational properties are an emotional investment, but would-be buyers need to consider that prices can be volatile and passing the property to the next generation can be complicated.FOTOGRAFIA INC./iStockPhoto / Getty Images
Some Canadians are considering recreational property as the real estate market softens and interest rates settle after reaching a generational high a couple of years ago.
But before hunting for that idyllic second home, advisors are urging buyers to consider the broader cost and the tax and estate implications that could overshadow the sentimental side of owning a getaway spot to share with family and friends.
“There’s the personal enjoyment and fulfilment piece, and the emotional side, but there’s also the financial side to consider,” says Maili Wong, senior wealth advisor and senior portfolio manager with the Wong Group at Wellington-Altus Private Wealth Inc. in Vancouver.
She points to financial considerations beyond the property price: taxes, insurance, maintenance and another mortgage, if necessary – all of which can affect a family’s budget significantly.
“As advisors, we’re making sure clients understand and don’t underestimate how recreational property can affect their cash flow and flexibility,” she says, including their ability to travel, pay for major expenses, such as a new vehicle, or pitch in to pay for a child’s university or a down payment on their first home.
Potential buyers also need to consider the opportunity cost of owning a second home, says Brianne Gardner, senior wealth advisor and co-founder of Velocity Investment Partners at Raymond James Ltd. in Toronto and Vancouver.
“What would the same capital do if we kept it invested?” asks Ms. Gardner, who models the stock-market-versus-recreational-property scenario for clients.
“It’s about making sure they understand what that capital might earn if we deployed it in the [stock] markets, compounded over time, compared with buying a property, with all of its carrying costs.”
Ms. Gardner also reminds clients that a recreational property is much less liquid than money in the stock market, and the real estate market may be in a slump when it’s time to sell.
“The appreciation on recreational properties happens in bursts, so you typically need to hold it for a while,” she says.
And prices can be as volatile as the stock market. For example, she says condo prices in Whistler, B.C., dropped by 12.4 per cent in 2024 compared with 2023, while waterfront prices in Muskoka, Ont., fell by as much as 32 per cent from their 2022 peak through 2024.
“Long-term, Canadian recreational property has appreciated at roughly 4 to 7 per cent annually in most markets over the past two decades, with elite areas such as Whistler and Muskoka’s premier lakes getting closer to 8 to 10 per cent when you factor in the pandemic run-up,” she says.
In comparison, she says, the S&P/TSX Composite Index returned 9.3 per cent annually from Jan. 1, 1996 to Dec. 31, 2025, while the S&P 500 returned 10.4 per cent.
Ms. Gardner tries to understand clients’ motivations for buying a property.
“Is it an investment? Is it a lifestyle purchase? Or is it something maybe they want to keep in the family for multiple generations?” she says. “The answer changes how we structure everything: the financing, ownership, tax planning – all of it.”
Get to know the location
Wanna-be recreational property buyers should be confident it’s in a place they want to go regularly, especially if it involves long drives, traffic or flights, says Darren Coleman, senior financial advisor and portfolio manager with Portage Cross Border Wealth Management at Raymond James in Oakville, Ont.
“Whether it’s a cottage in Muskoka or a condo in Hawaii, go live there for a few months and make sure you like it,” he says. “People will sometimes let the romance of being in a place overwhelm the more prudent decisions.”
Mr. Coleman says buyers should also consider who will look after the property when they’re not there, which could involve hiring a caretaker or property manager.
Canadians buying property outside the country also need to consider the exchange rate on the purchase price and monitor how long they can stay in a foreign country, as it could mean paying taxes there.
The property’s afterlife
Recreational property buyers also need to understand the tax consequences when they sell the property, whether during their lifetime or upon death when it passes to children in the estate.
Unlike a principal residence, recreational properties are subject to capital gains tax on the sale or death, Ms. Wong says.
“It’s often one of the biggest pieces we plan for, upon the second spouse’s passing, is that large deemed distribution,” she says. “Even if they didn’t sell the property, taxes may be due, and they could be hundreds of thousands of dollars. Families often underestimate the size of that eventual tax bill, especially if they’ve owned the property for decades.”
Ms. Wong often recommends clients either carry life insurance or set aside dedicated funds to help cover the capital gains taxes that will arise on the appreciation of a recreational property at death.
“That helps protect the family from having to make rushed decisions, such as selling the property, at an already difficult time,” she says.
In some cases, Ms. Wong says a recreational property may also be held in a trust to help avoid probate, maintain control over how the property stays in the family, and provide continuity across generations.
“Certain trusts (such as alter ego or joint partner trusts for those over age 65) can defer capital gains until death, though the tax is not eliminated and must still be planned for,” she says.
If multiple children are inheriting the property, Ms. Gardner recommends setting up co-ownership agreements in advance with clear rules on use, costs and what happens if one child no longer wants to own.
“It needs to be very, very clear,” Ms. Gardner says. “Without having that structure, inherited recreational properties can become emotional and financial battlegrounds. So, that conversation needs to happen while the parents are still alive.”