Beyond the bank of mom and dad
More and more first-time homebuyers considering non-traditional strategies
With soaring house prices, daunting down payments, high interest rates and the threshold to qualify for a mortgage more challenging than ever, many first-time homebuyers are thinking outside the box to find their way onto the property ladder.
“People are moving toward different concepts and being a little bit more creative on how to push their money into the best investment for themselves and how to get more space,” says Gillian Oxley, founder of Oxley Real Estate.
With two decades of experience, she knows first-hand that the dream of owning real estate for younger generations has become “harder and harder.” The following are among the strategies some are using to achieve the time-honoured dream of home ownership.
CO-OWNERSHIP
A co-owner is an individual or group that shares ownership of a property with another individual or group. The amount each owns may vary according to the agreement, which should outline how to handle various scenarios, such as one co-owner wanting to sell their share sooner than others.
While the concept is “nothing new,” Oxley has seen greater interest in multi-generational co-ownership after the pandemic. For some, it allows elderly parents to age in place and help care for their grandchildren. For others, it's a cultural preference.
Oxley says she's also seeing more young professionals opting to buy a property together.
“Splitting a down payment and mortgage can provide an important foothold into the real estate market,” she says.
HOUSE HACKING
In this strategy, you purchase a multi-room or multi-unit residential property with the intent of living in one and renting out the others. It can help you cover your mortgage and other monthly household expenses and possibly even generate income. Be sure to do your market research and check out zoning bylaws to ensure rental properties are permitted.
PRE-CONSTRUCTION PURCHASING
This strategy refers to purchasing a property in its planning or early construction stages rather than upon completion. It offers lower initial costs and high growth potential but does carry risks, such as project delays and market uncertainties.
Debbie Cosic, founder of In2ition Realty, a real estate sales and marketing brokerage, believes there's “no better time” to jump into the pre-construction market because developers are offering incentives the industry hasn't seen in a decade. Some, for instance, are offering payment structures that allow you to put down just a small percentage of the purchase price — one of the biggest hurdles for first-time homebuyers — and spread your payments out over time in what Cosic refers to a “forced savings plan.”
Many developers are also offering guaranteed mortgage rates around four per cent, along with incentives like discounted condominium parking spots and decor packages.
RENT-TO-OWN PROGRAMS
This “baby-step approach” to home ownership allows tenants with financial constraints to put a portion of their monthly rent toward a future down payment on the property in which they're living, Oxley explains. Finding a reputable landlord is crucial to this strategy.
Key, a Canadian real estate tech company, straddles the line between co-ownership and rent-to-own, says founder Rob Richards. Under its model, people become “owner-residents” from Day 1 by essentially purchasing a share in a property owned by a passive investor.
The initial minimum contribution to start co-owning is 2.5 per cent, which amounts to $15,000 on a $600,000 condominium. Monthly payments are based on market rents and are reduced based on the amount you co-own. A portion of your monthly payment — which starts at $50 — goes toward building your home equity. You can invest more at any time and each time you do, you own more of the suite and reduce your monthly rent equivalent.
“We offer total flexibility,” Richards says. “We call it the `benefits of owning with the freedoms of renting.' So even if the home you occupy is not one you want to own long term, it's very easy to cash in your equity and port it seamlessly to another home within the Key ecosystem, or to cash out your equity and buy a house generally.”