Co-Operative Home Buying: What You Need to Know

Although the extreme inflation that characterized much of the past year appears to be at an end, buying a home in Toronto is still beyond many people. Despite slowing sales, detached houses remain above the million-mark, and traditionally lower-priced segments such as Toronto townhouses and condos are priced at an average of $682,177 and $540,169 in August, respectively.

That simply prices many prospective buyers out of the market.

Related Read: How to Buy With a Friend or Family Member

Multiply Your Down Payment Funds With Co-Operative Home Buying

There are other options, however. Co-operative buying, where a group shares a property, is becoming an increasingly attractive option for people that otherwise wouldn’t make it onto the property ladder. In fact, there are sales agents dedicated principally to this segment, such as Leslie Gaynor from Royal Lepage Burloak Real Estate Services.

“I bought my first house with my best friend 25 years ago,” she says. “It is not a new concept. The difference now is that it is becoming normalized. Once people talk about cooperative purchasing like it happens all the time, then people start to feel differently about it.”

A Built-in Support System

As hearts and minds change, the benefits of such an arrangement become clearer. Mortgage repayments on a $1 million-plus home will likely stretch most middle-class families. Being able to split those repayments with another person, or persons, could mean the difference between living in the city or not. As Gaynor explains, co-operative ownership is not limited to certain demographics, but is a desirable option for a variety of different individuals, couples and families.

“People talk to me about aging in a place with the support of similarly aged people, or for younger people, they might ask why they need five cars, or things like sharing childcare or dog walking,” she says. “I think we are becoming more sensible when it comes to the resources we need.”

Ensure the Paperwork is in Place

Of course, with the money involved likely in the six- to seven-figure range, it’s not a decision to be taken lightly. Like any other agreement, terms and conditions need to be discussed and agreed upon before taking the plunge. The presence of a professional well-versed in such matters is also a necessity, as Gaynor outlines.

“The legal language on these agreements is not new language,” she says. “People form partnerships all the time in business. If you want, you can even set up a co-operation with shareholders, where shares are then distributed. It could be on square footage, where you pay a certain amount based on the size of your unit.”

New Mortgage Realities

When it comes to the all important financing, Canada’s famously stringent banks are now opening up to new realities. The average person or family is hard to quantify in 2017, and financial institutions are reflecting that, explains Gaynor.

“The lending agencies and financial institutions are started to be more aware of the need to move away from traditional mortgages,” she says. “Meridian has a friends and family mortgage now; TD has a product that allows for up to four people on a mortgage.”

Have a Backup Plan

Once the financing is secured, a cooperative partnership requires proper dialogue between all sides. Such arrangements are more common between people that are friends, but nevertheless, it is essential to protect yourself for all eventualities.

“In a condominium structure, people pay maintenance fees, which go into a reserve fund,” says Gaynor. “The reserve fund is used when the roof leaks. You can do the same thing here. Set up a household account that everyone pays into, have rotating management, then you have a reserve fund if someone loses their job and has to miss some payments.”

If that person is unable to meet their payments indefinitely, then it’s important to prepare for that outcome too. Like a businesses partnership, a contract will protect your interests in the event that one side cannot meet their obligations.

“If someone is long-term unemployed and can’t make their mortgage payments, you have an exit plan,” she says. “That means the person has to vacate their section of the home and you have the right to replace them with someone that is economically viable.”

About Daibhead O’Ceallacháin

Daibhead O’Ceallacháin is a freelance writer from Ireland that moved to Toronto in 2010. Writing for his local newspaper, he covered real estate during Ireland’s “Celtic Tiger” era and the subsequent housing crash and financial crisis. Today he writes about real estate, finance and politics in Canada, the U.S., Ireland and England.

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