“Despite the rise in interest rates, the year 2023 promises to be interesting for those who want to make an incursion into the rental investment of tourism”, began the press release from Hôtel à la maison, published on March 7.
It was, of course, to get attention. It succeeded.
“Even for the chalets that are currently for sale, our analyzes are very interesting on the possible income for the next few years”, confirms on the phone its general manager, Michael Carrier.
Hôtel à la maison offers management and maintenance services to owners of rental chalets and offers chalets for rent on its web platform.
With the pandemic, working from home and restrictions on tourism abroad, occupancy rates for rental chalets have sometimes approached 100%. “Over the last two years of the pandemic, we were 25% higher in terms of income,” Michael Carrier points out.
They return to normal.
“But you also have to see that it’s a long-term investment,” he adds. A cottage that can bring in between $25,000 and $35,000 net annually is still quite an interesting investment. »
The investor can also expect an increase in the value of their property and the increase in net worth increases as the mortgage is paid off, he argues.
The question is whether profitability will continue.
“I think it’s still a good business opportunity for someone willing to do it,” says Dany Papineau, president of WeChalet, a cottage rental platform that describes itself as a competitor to Airbnb and Vrbo. “We are a 100% Quebec platform, but which is 100% dedicated to the nature-adventure travel market niche. »
Precisely, “international tourism is coming back and we will still have good occupancy rates,” he predicts.
However, this means that Quebec tourists will also be flying again. Nothing to worry about for Michael Carrier, for whom “the booking becomes normal again”.
“There is a change for summer 2023: there is more interest in small cabins,” he observes.
After the large gatherings of family and friends that the end of confinement had favored, tenants are now seeking tranquility, less than two and a half hours by road from major centers. “Three or four bedrooms offer the best profitability,” he points out.
If the property combines summer and winter appeal, “you suddenly have a property that you can rent out four seasons. It’s much easier to make it profitable right away.”
“If you compare investment lines of business in terms of real estate, the rental cottage offers a lot more leeway,” says Anthony Gibault, president of Groupe Gibault, a developer of construction of rental chalets.
Although he was barely in his mid-twenties, the young and dynamic businessman has multiplied businesses, especially – but not only – in the real estate sector.
“We have Domaine St-Côme, 250 term rental chalets, Domaine Pine Hill, 31 million square feet, 500 term rental chalets. There are others that are yet to be publicly announced. We are the largest builders of rental cottages in Quebec. »
At Domaine Pine Hill, located in the Brownsburg-Chatham region, a dozen cabins have been built and around thirty other construction sites will get under way in the spring.
“Right now, a client at Domaine Pine Hill, with a four-bedroom cottage, is going to make between $20,000 and $35,000 net profit at the end of the year after all expenses,” says Anthony Gibault.
“Those are current numbers, with mortgage rates of 6.25%. So is it still a good investment? In numbers, yes. »
“When buying a new product, there will be no renovation to be expected in the short term,” admits Michael Carrier.
A distinctive property could attract the vacationer’s attention more than a cottage in a park of similar buildings.
“If you buy directly from an owner, it will often be a chalet that was not built like its neighbor, explains Dany Papineau. Often, there will be small renovations to do, the kitchen or the interior will have to be updated, but I see it as an opportunity all the same. You can buy a property at a lower price because it needs some renovations. »
In some cases, the property offered for sale was already offered for short-term rental.
“They’ll even pass you on reservations that are already made.” Often, they have a history of rental income for the last few years, ”underlines the president of WeChalet. “We see it happening, especially on Facebook groups selling cottages. It’s more rare, but yes, it does exist. »
Not all observers are so optimistic.
Let’s review the situation with healthy circumspection, under the lens of Pierre-Raphaël Comeau, Senior Planning Advisor at LVBL Cabinet de services financiers, attached to the Laurentian Bank.
Without posing as a real estate expert, he wanted to do some background checks by analyzing Royal LePage’s recent analyzes of the recreational property market.
“According to this research, there has been an average of about a 25% increase between 2020 and 2021, and then another 15% between 2021 and 2022. Between 2022 and 2023, the jury is out. »
Some see a drop of 7%.
Assuming a 30% price increase since 2020, the property paid for $450,000 in 2020 with an interest rate of 2% would now be purchased for $585,000 with an interest rate of 5.74%.
The monthly payment of $1,524 in 2020 would now be $2,922.
The 20% down payment increased in three years from $90,000 to $117,000 for the same property.
Will our new investor be able to rent high enough to make their purchase profitable? “He will not be able to double his prices, while he is in competition with the landlords who have fixed their rates in 2020 and 2021”, underlines Pierre-Raphaël Comeau.
This newcomer must also take into account inflation, which increases the costs of renovation, maintenance, snow removal, heating, etc.
“Everyone pays for it, yes, but that’s another barrier to entry. »
The more traditional investor faces other costs, risks, setbacks, and inconveniences, but “the tap never runs on their exchange-traded fund.”
He also doesn’t have to replace the septic tank in his mutual fund or upgrade the kitchen in his CPG.
“Getting involved in an investment like that requires you to be a little manual because if you have to pay a plumber every time the tap leaks, it will cost you a fortune quickly. »
Since 2018, the number of rental properties has increased by almost 50% (see box).
Hence the relevant question from Pierre-Raphaël Comeau: “Who are you going to rent your chalet to?” »
“Everyone is dealing with inflation,” he points out. The average small family is paying more on their own mortgage, so the vacation budget is likely to be the first to be squeezed. »
Will the luxury remote workers, as he calls them, be there?
With the return of air travel, “confined adventurers” – “it’s not marketing terms, it was I who took poetic license”, he says – have for their part found their way back to Kilimanjaro.
“As in many investments, if it doesn’t suit you, you can get your capital back at some point,” the planner reminds.
However, “reselling a cottage is a lot more complicated than reselling an exchange-traded fund or a stock.”
Furthermore, “it’s a safe bet that the biggest price increases are behind us.”
In short, the acquisition of a chalet for rental purposes is not a financial panacea.
“For Jean-Guy, who is a plumber, fixing the plumbing in the chalet will not be a problem,” concludes Pierre-Raphaël Comeau. Each investment is unique to each individual. As Warren Buffett advised: invest in what you know. »
Or get to know it before investing.
It is not certain that the demand for rental chalets will be maintained, but one thing is certain, the supply is increasing.
In 2018, the Ministry of Tourism had 6,264 classification certificates in the “tourist residence” category, which was current at the time.
As of August 31, 2022, this category had 10,801 attestations.
“The old category ‘tourist residence’ did not only include chalets, but also any establishment, other than a principal residence establishment, where accommodation was offered in apartments, houses or furnished chalets”, underlines Virginie Rompré , coordinator of public affairs and strategies at the Ministry of Tourism.
Still, the trend is undeniable: the category grew by 47% between 2018 and August 2022.
In 2023, however, this data is no longer available.
“Since the entry into force of the Law on tourist accommodation and the Regulation on tourist accommodation on September 1, 2022, the category of “tourist residence”, which included chalets for short-term rental, does not exist. more,” says Ms. Rompré. These establishments are included in the new category “general tourist accommodation establishments”. »
Some advice that the potential investor will praise himself for having followed.
Faced with the proliferation of short-term rental properties, municipalities have often adopted restrictive regulations.
“It works in batches,” says Michael Carrier, general manager of Hotel at Home. “Renting in the even numbers of a path may be allowed, but not for the odd numbers. Check with the municipal planning department. »
