Some Canadians turn to co-ownership as gateway into housing market 
Eric Shackleton, THE CANADIAN PRESS TORONTO - Many Canadians in their 20s and 30s who dream of owning a home face a significant financial hurdle, especially since house prices just seem to keep on rising, making affordability a burning issue. When entering the workforce, 20-and 30-somethings often must settle for part-time positions or self employment, meaning a frustratingly long period before building enough capital to buy a home, say analysts. "That's the challenge people are looking at," said Murray Pituley, an Investors Group financial planning expert, who lives in Regina. "Higher prices and a longer period of time before they are able to afford a house." Although many do eventually buy a home with a spouse or common-law partner, others must seek out innovative ways to get their foot in the door, including co-ownership partnerships with family members or friends. "I'm seeing more and more of it (co-ownership) over the last few years," says Dianne Usher, vice-president and division manager of Royal LePage J&D Division in Toronto. "Affordability is certainly a driver" for many, she said. For others, it is a way to invest instead of buying stocks and bonds in volatile public markets. In its last census, Statistics Canada estimated that the value of Canadian homes between 2001 and 2006 rose 49.3 per cent. The Canadian Real Estate Association says since 2006, house prices have shot up 15 per cent. At the end of July this year, the average price of a resale home nationally was $302,298, or $327,020 in major markets, according to Multiple Listing Service figures released by CREA. At the same time, Statistics Canada determined that home ownership is a top priority for 76 per cent of adults aged 25 to 39, who have left the nest. However, it said only 60 per cent manage to achieve home ownership. As of 2006, says Statistics Canada, more than 70,000 young adults had bought homes in partnership with a friend, sibling, parent or other family member. It is a trend that appears likely to grow. Co-ownership, said Usher, is "national and it's emerging." For instance, "there are those who want to get into a co-ownership situation because of affordability particularly if they want a higher-end neighbourhood," said Usher. Then, there are those who "say 'You know what? Instead of putting our money into the stock market, let's buy and co-own a unit or units'," she said. Putting your money into a house is "a little bit more stable in the long term than other forms of investment," said Usher, especially given the ups and downs of the markets following the worldwide credit crisis. Some are buying multi-units, a duplex or a triplex, and there may be friends or family members co-habiting on different floors - mom and dad on the lower level with adult children up above, said Usher. Co-ownership is also somewhat gender driven, she said. "Women believe in real estate these days... we have more singles out there." A couple of professional women will go together to buy a property in a higher-end neighbourhood, which they couldn't afford on their own, said Usher. Or a group of women will buy a property and rent it out, not necessarily to each other, but as an investment. Richard Corriveau, with the Canadian Mortgage and Housing Corp. in Calgary, says parents and their children attending university sometimes buy houses together. "A lot of folks rather than pay rent for children while they are going to university ... they'll buy a condo and by the time they're done (graduated) they hope to realize some price appreciation," he said. It is a way to build some equity, he said. But there are pitfalls, he said. There is the risk that "the property doesn't appreciate as fast as you would hope to make sure it pays for itself." Pituley said there are several drawbacks to co-ownership arrangements, including instability of relationships and not being able to decide who does what, such as repairs. Many of these problems can be avoided, he said, by drawing up a co-ownership partnership agreement with a lawyer at the same time that the buy-sell deal is arranged. A co-ownership agreement spells out how the expenses are to be paid such as the mortgage, what happens under the different 'what ifs' that could occur, and the way a partnership might be wound up. What if one of the friends wants to sell her interest, or gets married and wants to move away, or someone dies unexpectedly, or you need to replace a departing partner with a new one, or you can't stand your partner anymore. These "what ifs" should be thought about and documented by a lawyer in an agreement that everybody is party to and they know just what will happen, said Pituley. "If you have a co-ownership agreement, you can amend it," he said. HOW TO DO IT: 1) Two or three people/students decide to band together to buy a home, each having an equal interest.
Choose whether a condo or small home is best suited for you.
Try & choose one with an extra bedroom if possible, to use as a computer room or den. 2) Two parties jointly apply for a 3 or 5-year mortgage. You must pre-qualify.
(To do this, contact Kari Gares at 250-558-8091) 3) Steve will find your perfect shared home with you both. I will send you a computerized list of homes to peruse that's up-to-date as they come up
Here are the numbers:
If 2 people put down $10,000 each, they could buy a home
for $385,000 using their first-time Buyer's Grant.
Even if prices rose only 25% over 5 years their
home would be worth $462,000 at the end.
That’s a pretty good return of $39,000 a person! Don't forget that your equity is actually higher than this,
because you've also been paying down your mortgage during this 5-year period! PLUS! YOU'RE NOT THROWING AWAY
up to $9600 a year on rent!
(Based on $800 per month rent) 4) After 5 years, you sell the home, you each take your proceeds and buy your own home!
5) The other option would be to keep the home, rent it out and re-mortgage it, using the equity
in it to each purchase another home. THIS IS HOW PEOPLE BUILD WEALTH! YOU CAN BE ONE OF THOSE PEOPLE!
For more information on Co-ownership as an option for you
& your friends, call Steve Bertram at 250-306-7575 for a
Free, no-obligation phone consultation. |