LITMIR.BIZ

      Pete and Anna have a three-bedroom lakefront cottage on Catchacoma Lake in the Kawartha region of Southern Ontario. They bought it partly as an investment, but also to spend the occasional out-of-season weekend there. They plan to rent the cottage for four to five years to raise enough money to build an extension with an additional bedroom and bathroom, rebuild the deck, and replace the roof. They see rental income as the way to achieve their aim of retiring to their cottage while also being able to enjoy time in it before they retire. Taking their plan very seriously, they wrote their financial goals within their strategic plan, setting out short-, intermediate-, and long-term objectives. With these figures they were able to develop a marketing plan that would achieve their goals.

      Forecasting Expenses

      Financial forecasting consists of identifying your fixed expenses — expenditures you have regardless of whether the property is occupied. These are expenses such as property taxes, telephone rental, insurance, mortgage payments, satellite TV subscription, etc. Some of these costs you will already know — taxes, mortgage payments; others you’ll need to think about and make some educated guesses. If you already employ someone to do general maintenance and yard work, include that cost in your fixed expense figure.

      Variable costs are those that change dependent on whether the vacation home is occupied or not. For example, cleaning expenses, heating, electricity, and long-distance telephone expenses are variable. By using a spreadsheet program, you can adjust the anticipated expenditures to match your forecast occupancy.

      Capital expenditures

      Capital expenditures are one-off costs that may arise during the year. If you have just bought a vacation home there will be expenses to furnish and prepare it (see Chapter 5, Getting Ready for Renting). If your cottage is established, you may need to upgrade it to fit a higher rental category. Chapter 5 also gives some ideas on how to add value to your property for this purpose. Ask yourself what you need to set aside for major purchases through the year, and input this figure on the spreadsheet in the month you expect to make the payment. Don’t forget “surprise” expenditures: a septic pump that fails mid-season or a heated water line that needs replacing while you have winter guests in residence, to mention a couple. These might not be planned, so an emergency fund is helpful for such circumstances.

      Electrical costs

      Let’s assume that you are planning to rent year-round. This will mean you’ll be heating the property right through the winter, albeit on a minimum setting when it is empty. Be realistic when forecasting electricity costs. Depending on your location, take into account the strain that running air conditioning can place on a budget.

      When you are making any forecast, make sure you include all the expenses, as forgetting some could have quite an impact on your break-even calculation. If in doubt, it’s better to overestimate expenses now, rather than getting a nasty surprise later.

      Don’t expect your guests to economize on fuel in the winter or air conditioning in summer, although you can do some things to encourage them to be more thrifty with your power supply. Fitting individual thermostats in each room may help, but you then have to hope they will turn them down when they go out. Saving electricity is often a hit-and-miss affair with guests. Unless you are charging them separately for the fuel they use, why should they bother? Some owners stick a small label onto each thermostat as a reminder; others have a notice on the outer door so that it will be seen as guests leave to go out for the day. This is fine, but from experience, it’s sensible to forecast for the worst case: high electricity bills while you have renters in the winter and/or air conditioning units in hot seasons.