BY SHANNON MONEO
As the median price of a new home in Greater Victoria continues to climb, more wishful homeowners are considering non-traditional methods to get into the market. Mortgaging the future has taken a new twist.
So many aspects of Canadians’ lives have been transformed in the last decade. One ongoing change has been the rapid ascent of real estate values. In response, novel home-buying methods are being honed, created or resurrected.
“People should open their minds to other ways of living, buying,” says David Hale, principal at Shared Home Ownership Victoria and a Realtor with Team 3000 Realty. “We’re so conditioned to do things on our own. We need to grasp the idea of a shared economy.”
Earlier this year, RE/MAX released a survey that indicated that 32 per cent of Canadians are seeking alternative home ownership methods. The survey found that of the Canadians considering out-of-the-box home ownership, 22 per cent of them were interested in rent-to-own, 21 per cent considered co-ownership with a non-partner family member and 17 per cent would explore buying a home as primary tenant while renting a portion.
In the Vancouver Island market, the top three forms of non-traditional home ownership were joint tenant, secondary suite generating income and tenants-in-common.
The short story: A lot of people are open to doing something different.
Pairing Up for Shared Home Ownership
Hale has been selling homes in Greater Victoria for over 30 years, so he’s witnessed economic ups and downs. One “up” is illustrated by B.C.’s South Asian community, which has been using shared home ownership for decades to create wealth.
Grandparents and parents own a home; grandparents care for the children, allowing both parents to work and not pay for childcare.
Mortgages are paid down relatively quickly with up to four contributors. What often follows is added income to buy a business or another house, Hale explains.
“If you get two parties joining, there’s a lot more buying power,” he says.
It’s a trend that’s been picking up popularity around the Island, as prices drive more multigenerational buys and builds.
Investment Homes that enable affordability
Another pillar of shared home ownership is when an investor enters the market with a first-time homebuyer, allowing the first-timer to buy with a partner who will not occupy the home.
This is most common with parents able to help their kids get a start, or a relative, friend or acquaintance who sees the investment as value for down the road when resale is possible, allowing someone to become a partial owner and possibly full-time resident in the meantime.
A less conventional version of this approach involves the homeowner selling a portion of their home — something Hale and his wife did four years ago. The merger unites two unique parties to support the cost of one full residence. Sometimes these buildings become stratas or condos within a home; the terms are typically between sellers and buyers.
Hale and his wife sold two floors of their three-level, 2,400-square-foot Langford home. The couple still lives in the 800-square-foot ground-floor suite, and Hale is a big fan of the arrangement. The sale freed cash and they now spend a sizable amount of their time travelling. Not only that, purchasing two-thirds of a home became affordable for the new buyers.
Hale predicts an imminent wave of like-minded, downsizing seniors who will sell a portion of their home, take up residence in a house’s suite and proceed to enjoy life. To avoid acrimony, however, all tenants in this arrangement should agree on how household operational payments are made and that maintenance is done. A joint venture agreement must be drafted by a lawyer.
“The parties enter together to spell out all the details,” Hale says.
If, eventually, one party wants out, both parties can sell or one party can sell their share to a new owner — as long as the other owner agrees.
“If parties can’t agree, the whole home goes up for sale,” Hale says.
Rent To Own
Rent-to-own arrangements seem like something out of a ’90s infomercial, and Hale first encountered one of these arrangements himself three decades ago.
“It’s very rare these days,” he says. “The seller is disadvantaged when prices rise.”
That’s because rent-to-own works in a declining market, which Victoria is not. It’s also an option that few lenders will entertain now, in the face of more typical, competitive proposals.
Jane Johnston, a Realtor with The Briar Hill Group at RE/MAX Camosun, also doesn’t recommend going this route because of its predatory nature, especially for the buyer.
“It’s a bet on the part of the buyer that the prices will go up. It can be risky because a portion of the rent goes towards the down payment. The rent can be inflated, though, and if the buyer doesn’t complete, then the buyer loses the down payment,” Johnston says.
Family Help for first time home buyers
Johnston often sees the generosity of family members helping to make homeownership a reality — usually parents. This takes different forms.
Some parents give or loan money to cover down payments or closing costs. If a gift, the mortgage broker requires a “gift letter.” Parents also co-sign mortgages to help children qualify for better loan and interest rates.
And some parents allow their adult children to live with them rent-free or at a reduced rate, thereby freeing money for a future down payment.
“Keep in mind, helping your adult child buy may be a burden or a gift, depending on how the kids make financial decisions,” Johnston advises.
At RE/MAX Generation, Realtor Jason Leslie has worked with a brother and sister who co-purchased a two-bedroom condo.
“Not their first choice, but independently neither of the two would qualify for a purchase on their own,” he says.
Leslie says some arrangements get as creative as the families that agree to them.
“I have other clients who purchased a home in North Saanich with a legal suite above the garage,” Leslie says. “The mother-in-law sold her house and provided those sales proceeds to her daughter and son-in-law on the conditional basis that she would have a place to live for the rest of her life and will contribute as babysitter in the interim.”
According to a recent RE/MAX survey on Vancouver Island, the top three forms of non-traditional home ownership were joint tenant, secondary suite generating income and tenants-in-common.
Creative Couples for multi-unit housing
Leslie touts the provincial government’s new Small Scale Multi-Unit Housing guidelines as something that will create previously non-existent options for families and have a major impact on how housing is held.
Along with an increase in parents giving their children down payments as early inheritances, mortgage broker Dan Miller of Miller Mortgages is seeing an uptick in friends buying together. It’s called creative couple financing, but Miller warns you need good legal documents to keep everyone safe.
Lately, even inquiries about mobile homes, co-op properties and lease-land purchases have been crossing his desk. Things are, admittedly, getting creative.
“Very few lenders will finance these properties, though. It’s more a niche financing product,” says Miller, who’s been in the financing business since 2000.
While the market can throw curve balls, buyers and sellers are definitely upping their game.
“Consumers are more savvy than in the past,” Miller says.
BEFORE YOU SIGN
New buyers should keep these things in mind when entering the market.
- Talk to your bank or mortgage broker early to develop an “enough money” plan.
- Secure financing in advance.
- When co-buying, ensure all buyers have same expectations and are prepared to work amicably.
- Have a lawyer-prepared agreement that outlines purchasing, terms and dispute resolution, similar to a pre-nuptial agreement.
- If a co-buyer wants to opt out, make sure prior agreements cover division of ownership, costs and responsibilities.
- With rent-to-own, make sure the cost of rent isn’t more than comparable properties and that the planned purchase price is reasonable.
- Ensure lease and option-to-purchase terms are well understood, to the point of having a lawyer review the documents.