Vacation Rental Reality Check: Uncovering Hidden Costs of Cottage Ownership
When Orysia Sozanski purchased the property next door to her cottage, renting it out wasn’t part of the plan. The idea was to create more space for visiting family and eventually move into the second cottage.
Then, interest rates climbed. “Very high interest rates when we closed forced us to rent, with the intention that the rental revenue would cover our mortgage and expenses,” says Sozanski. “Our long-term goal is to pay it off and not rent it out.”
Sozanski’s renovated, 1,200-square-foot waterfront cottage sits on the Simcoe/Muskoka border and rents for 10 weeks in the summer at $3,300 to $3,600 per week. Nearby, Muskoka District Rentals’ portfolio of rental cottages ranges from $3,000 to $125,000 per week during the peak season, according to owner and realtor Maryrose Coleman.
Meanwhile, east of Toronto in Prince Edward County, Tyler Schwende takes a short-stay approach with his year-round vacation home in the Waupoos community, averaging two- to three-day bookings across 91 nights in 2025 at $813 per night.
For Sozanski, the rental income helps, but doesn’t completely cover ownership costs. Schwende either breaks even or sees a slight annual profit.
A cottage rental may bring in thousands of dollars a week, but the math isn’t as straightforward as it seems. Profit quickly shrinks once mortgage interest, property taxes, insurance, utilities, turnover costs, maintenance, platform fees, management fees and income tax are factored in.
For many owners, cottage rentals aren’t the money-makers they’re cracked up to be, but a means to offset the steep costs of owning a property meant to be enjoyed for years to come.
The real costs behind each booking
Cottage owners often underestimate the cost of renting and overestimate a property’s rental potential, Coleman says.
“We had a rental property on Lake Muskoka a few years ago and the owners didn’t understand that the Muskoka rental market is hyper-focused on July and August and expected winter revenues,” says Coleman. “I ultimately advised them to sell, as the carrying costs greatly exceeded their potential revenue.”
The expenses start long before guests arrive. Beyond fixed costs like utilities ($10,000 annually in Schwende’s case), taxes, insurance and maintenance, unexpected repairs — like a failed septic system or broken hot tub — can quickly erase a week’s profit. Each turnover also requires cleaning, laundry, consumable supplies, and guest communication. Schwende’s cleaning fees alone cost $20,000 last year.
When renting independently, you pay to advertise with online travel platforms, which typically ranges from 15.5 per cent to 20 per cent of the booking value plus HST depending on the platform, according to Coleman. A property management agency like Muskoka District Rentals can handle the bookings, property maintenance, and guest communication for you, but costs between 25 and 35 per cent.
Coleman says owners typically retain about half of gross rental revenue after expenses. “For most people, renting isn’t paying the mortgage,” she says. “It’s helping offset the ownership costs — mostly taxes.”
Navigating the rules
New regulations also impact cottage-rental economics. Many municipalities now require owners to register short-term rentals, resulting in fees and paperwork. Annual licensing fees range from $500 to $1,500 in cottage country, Coleman says.
Schwende says Prince Edward County’s strict licensing requirements “have added thousands annually” to his expenses. A rigid local regulatory framework no longer issues new licenses for short-term rentals of entire homes, allowing them only on properties with grandfathered licenses issued before the rules changed.
Rental income must be reported as taxable income. If annual taxable short-term rental revenue exceeds more than $30,000 over four consecutive calendar quarters, owners must also register for, collect and remit GST/HST. Some municipalities also levy a Municipal Accommodation Tax (MAT) of at least four per cent, typically paid by guests but administered by owners.
“A cottage owner can generally deduct reasonable expenses incurred to earn rental income,” says tax and estate planning expert Jamie Golombek. “These include advertising, as well as a pro rata share of the utilities, property taxes, mortgage interest, insurance and repairs for the time the cottage is rented.”
Golombek notes that under 2024 rules, no expenses can be deducted if a short-term rental operates in an area where they are prohibited or the owner doesn’t follow local operating requirements. He adds that claiming a rental loss to offset other taxable income is only allowed if owners charge fair market rent and operate the rental in a commercially reasonable manner.
Investment vs. lifestyle
A 2026 Leger survey commissioned by Re/Max found 60 per cent of Canadian recreational property owners say it’s part of their long-term wealth strategy.
“Over the long run, a rental property should probably provide a comparable return to a balanced stock/bond portfolio,” says financial planner Jason Heath. “It’s just a lot more expensive to buy one, a lot more difficult to sell real estate than stocks and bonds, and much less diversified. One isn’t necessarily better than another overall.
They’re just different ways to invest.”
An advantage of stocks, notes Heath, is that they can be purchased in an RRSP, TFSA or other tax-advantaged accounts. Unlike stocks and bonds, recreational properties provide something beyond financial returns: personal enjoyment.
Muskoka realtor Kristyn Kennedy says the best cottage investments work both as a lifestyle purchase — somewhere owners enjoy themselves — and a practical financial decision.
“Top-performing rental properties appeal to a broad group,” says Kennedy. “A flat lot with shallow water entry for all generations to enjoy is ideal, as well as close proximity to town, easy access, reliable Wi-Fi, modern kitchens and bathrooms, plenty of sleeping space, and outdoor amenities like a good dock, fire pit, hot tub and nonmotorized water toys.”
Rental success depends on choosing the right cottage and having realistic expectations about expenses, occupancy, management and revenue, Kennedy says.
Renting a recreational home helps offset its costs, but its memory-making potential may be its greatest return.
This article was first reported by The Star
