As home-buying goals continue to be top of mind for many Canadians, more people are looking into other avenues to break into the market, including co-buying a home or condo — be it with friends, family or an investment partner. Communal homeowners, or co-buyers as they’re known, are a growing trend in today’s market and can be an economical way to become a homeowner.
Toronto Realtors Ravi Singh and Justin Chang — the latter of which has been co-buying condos since he was eighteen — offer their perspective on their own co-buying experience at Empire Maverick. They join us to talk about what’s important to consider before making the decision to purchase with others and what the rewards are in doing so.
The Rewards of Co-Buying
Co-buying with a significant other, family member, friend or business partner is a great way to get your foot in the real-estate door. “The decision to co-buy is just another way to get into a real estate investment. If you have $200,000 sitting around, great — but if you only have $25,000, there are ways to start leveraging that,” Ravi says. “Try and find people who are like-minded and are on the same page as you” because now that Toronto’s market is becoming a bit harder to get into, “it’s about getting your foot through the door and partnering with people to accomplish the first purchase,” says Justin.
“Mitigating the risk and being able to share the rewards has been the best part,” he says. “There’s also less stress on one person to come up with the deposit at one time. Cutting a cheque for $30,000 is doable but cutting a cheque for a portion of that takes some of the pressure off. Co-buying also allows you to diversify — you can put $100,000 into one project, or you can put $50,000 into two,” Ravi says. “We saw the potential of the project we wanted to invest in, and while at the time we weren’t able to do it on our own, we decided to partner up,” Justin says. “The more people that are involved, the more you can accomplish.”
Start with a Talk
Now that you’re familiar with the benefits of co-buying, it’s important to discuss your goals and prepare for any unforeseen circumstances. Before you scour the internet for properties or call a realtor, consider the following questions with your co-buyer.
- What are your short-term and long-term objectives with this purchase?
- Are you planning to live in the unit or use it at a rental property instead?
- If you’re planning on renting, who will decide on the tenant?
- If you’re not each other’s significant other, how will your personal relationship change your homeownership situation?
When you’re making a mutual purchase with your co-buyer, it’s important that you remain mindful and respectful of one another. In order to do so, effective communication is imperative. “When you co-buy a condo, you’re entering into a partnership so make sure that there’s strong communication between you and your partners. When you start renting, repairing or managing the property, there will be questions that you have to come to an agreement on,” says Ravi. “Make sure that everyone is on the same page — not just with the present, but with the future as well,” says Justin. Before purchasing, it’s important to answer the questions above so that you have a clearer picture of what joint ownership will look like for you.
Swap Credit Scores
The terms of your mortgage will most likely be calculated based on both co-buyers’ credit ratings. Your credit report is a very important indicator of your financial health; it contains a full history of how you’ve paid your bills, how much outstanding credit you have and how responsible you are with managing loans. Before you purchase, swap credit scores with your co-buyer, which will give you an indication into whether you should enter into a joint investment. Credit scores offer no indication of someone’s financial situation, but offer information on how they’ve handled loans, instead — insight which is vital to your decision to buy with them. Want to know more about your credit report? Here’s a handy introduction to credit reports from the Financial Consumer Agency of Canada.
Put Your Plan in Writing
A neutral third party, like a lawyer or other mediator, can assist you in putting your plans in writing, including how long both parties will have to commit to owning before they can sell. A lawyer can also help you keep track of the percentages that each party owns in the event of an uneven split. This ensures that the party who contributed more is protected and won’t lose out in the event of a quick sell or another unexpected situation. The cost of maintenance or other monthly expenses is also important to address. All in all, reach an agreement that makes both parties comfortable and put it in writing so that there’s no confusion. This will kick your co-buying experience off on the right note.
Finance It Responsibly
If you trust your co-buyer enough to split the mortgage payments among yourselves, say from a joint account that you both contribute to, great. However, you may consider a Mixer Mortgage, which can be split into multiple parts, such as one variable part and one fixed part. In many situations, mortgage payments can be made separately and can be split to reflect the specific percentage of the mortgage that each party owns. Some mortgage lenders will even accept two separate applications from each co-buying party, so that one person’s financial details or sensitive personal information will not be disclosed to the other co-buyer.
The key is finding a suitable arrangement that works for all parties. “The cheques happened to come out of my chequing account when Justin and I purchased — the deposit amounts were being placed into my account which was later used for the deposit cheque to purchase at Maverick,” says Ravi. In this case, “whoever delivered the cheque made sure that the other partners deposited their money in time into the bank account so that when the installment came out, there was a sufficient amount of funds for withdrawal,” Justin says.
Twice a year, particularly if you don’t actively see your co-buyer, sit down to discuss your shared investment. Perhaps property values have skyrocketed and you’d like to consider selling sooner than you thought, or your co-buyer wants to move out and rent their share of the property. Yearly maintenance to keep the place running smoothly should also be discussed, as well as any other upcoming events that will require both buyers’ attention. These discussions should be in addition to frequent communications that you have with your co-buyer and are key to a great co-buying experience.
Where to Purchase
If you’re considering co-buying a property, it’s important that you evaluate where to purchase and that your choice reflects what’s important to you. For Ravi and Justin, location, price and builder reputation were among their most important considerations. “Builder reputation, location, as well as price are all things that investors should consider,” says Ravi.
With 25+ years of experience and over 28,000 homes to our name, Empire Communities is a trusted homebuilder that is dedicated to building communities that you will love. One of our most recent projects, Empire Quay House, is located on the edge of Toronto’s waterfront, while still being close enough to the downtown core. With transit, bike lanes, shops and restaurants nearby, Quay House offers investors conveniences that other Toronto residences may not. Steps away from George Brown College and located directly across from Toronto’s waterfront, Quay House is perfectly located along the city’s Queens Quay. Don’t miss out on your chance to lock in some of the best prices per square foot in the area with this fair market investment that also offers plenty of opportunity for growth.
*Empire recommends for those who are considering co-buying to consult with a lawyer to discuss your particular needs and circumstances.