Could co-buying be your way into the market?
Published on February 11th, 2020
Many Canadians struggle to purchase a home—and with good reason. According to the most recent report from the Organization for Economic Co-operation and Development (OECD), Canadian house prices rose 22% faster than income in 2018. In fact, Canada had the highest house price to income ratio in the world. That same year, the average annual increase in the Consumer Price Index (CPI), which measures hundreds of items including food, utilities, clothing and appliances, was only 2.3%.
It has become challenging for many Canadians to obtain their desired type of housing, whether it’s their first house, a larger property such as a hobby farm, or a home in nicer neighbourhood.
Co-owning is a growing trend that allows people to achieve their dreams of home ownership. In addition to the financial benefits, co-owners can enjoy a sense of community while sharing responsibilities for yardwork, child-minding, and more. It can be especially attractive to single parents, those living in expensive cities and retirees with limited financial resources.
What is co-owing?
Co-ownership refers to a shared living arrangement where two or more people own and live in a home together. They may share the same living space, but typically this arrangement works best for a property with a legal suite or a carriage house. Co-owners can contribute equal amounts to the cost of the property and have equal decision-making power, or they can have unequal levels of contribution and unequal decision-making ability.
Co-owning allows people to purchase more together than they could purchase individually. The benefits do not stop there: co-owners save time and effort by sharing in the maintenance tasks and save money by sharing the costs of insurance, repairs, and property tax.
A legal agreement must be drawn up to document the contribution that each party has made to the purchase price as well as closing costs (e.g., legal fees, property assessment, home inspection). This legal agreement is often necessary when obtaining a mortgage and can help prevent misunderstandings in the event that one party wishes to sell.
Any agreements should also specify how the property is to be used. For example, which indoor and outdoor spaces are for common use and which are private? If one of the owners develops a romantic relationship, will their partner be allowed to move in?
Each co-owner must be on the property’s ownership title for their own protection. There are two common types of ownership title involving multiple people: tenants-in-common and joint tenants. Essentially, the difference is in how the property is allocated in the event of someone’s death:
- If a tenants-in-common co-owner dies, the ownership does not automatically go to other owner(s). Instead, their share of property becomes part of their estate.
- If a joint tenant co-owner dies, the surviving co-owner(s) inherit the deceased’s share of the property.
Alternatively, co-owners may decide to establish a corporation. The Ontario government published a guide in December 2019 titled Co-owning a Home. The authors explain that the property title could be held by a corporation or a co-operative corporation created by the co-owners. This corporation ownership may make it easier for co-owners to sell or transfer their share without requiring a change to the names on the property title.
In a home that is divided into separate, self-contained units, co-owners can establish a condominium corporation. A condominium is not a type of building, but rather a form of ownership. It can apply to almost any type of multi-unit property. According to the Ontario government’s guide, “condominium owners may be involved in the board of directors and would be subject to the by-laws and rules of the condominium. Each unit’s owner has the right to sell or transfer their unit to anyone they choose, and to obtain their own individual mortgage.”
There are many benefits to co-owning, so what are the downsides?
Anyone who has lived in an apartment or townhome has experienced the challenges of living in close proximity to others. There can be issues with noise, lack of privacy, or inconsiderate behavior. The one difference with simple co-ownership is that the parties know each other beforehand and have voluntarily chosen their neighbours. How many people in apartments wish they could say the same!
Co-owning does involve some compromise and a willingness to explore new options. With clear agreements, and suitable title and ownership choices, co-owning is an innovative way to enter the real estate market, build equity and enjoy a better lifestyle and property.
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