The substantial increase in property values, together with increased government regulation has eliminated many first time buyers from the market or substantially reduced their buying power. The burden of saving for a down payment and the cost of ownership are two factors that are also preventing buyers from entering the market.

There have been instances, in the past, where buying with a partner has made sense for young people to get into the housing market. Those partners could be your brother, your sister, your cousin, your BFF or you and your partner and another couple. It has also been popular amongst older divorced or widowed men and women who want the freedom of a home, the economy of shared expenses and the safety and companionship of a partner. Millennials, however, have dominated the first time buyer category with a median age of 28-31, when entering the market.

There are obviously a lot of reasons to own instead of buying.

The obvious ones include: 

1)Creating equity, instead of throwing away money on rent.  For those current homeowners in the market today, it has been a win-win for past buyers based on property appreciation. (see below)

2)Ownership carrying costs are often less than current rates as rental accommodation shortages have pushed rents up significantly.

3)You may be able to purchase better accommodation than you would in a rental situation as you will qualify based on two incomes. In the examples below, the monthly cost of shared accommodation would be below most rents for an apartment in today's market and with rent, you have no opportunity to accumulate equity.

4)You need only to come up with 2 1/2% for the down payment, plus another 1 1/2% of closing costs

The best type of property to buy in a scenario, such as this, is a duplex or a triplex with one other unit as a rental component. There are also a lot of properties that now have legal in-law suites that could fit the bill, perfectly. In the case of a single family unit a down payment of 5% is required. In a duplex it is 7.5% and a triplex  a down payment of 10% is required. The down payment requirement changes with property values over $500K.Most popular have been up and down two-unit properties with separate entrances and separate accommodations.

Let's consider a couple of examples where we will look at the monthly carrying costs on a mortgage, the value appreciation in a property over 5 years at a 2% annual compound rate and the assumption of the sale of the property at the end of a 5-year term

Example #1-Purchase price $300,000 -Total Down payment with closing costs each $11-12,000, Taxes estimated at $3200 per year-5 year term using 3.14% and bi-weekly payments

Payment each $978-balance at the end of 5 years $246K

Assuming a 2% annual compound appreciation rate over 5 years=$331K

Net equity assuming a sale with a 4% real estate cost,plus HST,plus legals=$314,500-$246,000=$68K or 34K each

Example #2-Purchase Price of $400,000 Total down payment $15-16K each, Taxes estimated at $4200

Payment $1282 each-Mortgage balance after 5 years

Value after 5 years as above $441K

Value after sale and costs-$419500

Net equity-$91,500 or $45750 each

In a scenario such as this, it is assuming the partners go into this for a 5 year period to maximize equity, but a lot can happen in 5 years.While partnered ownership can set the stage for a build-up of equity towards future individual purchases, the arrangement has to be approached in a business manner with a defined written agreement that sets out the "What Ifs" for the future.

There are too many to list here but here are a few "must haves" in an agreement:

1)What happens if one partner wants out before the 5 years?

2)Clauses pertaining to shared cost, how they are handled and by whom.

3)Parking and shared facilities.

4)Guests or live-ins.

5)Life insurance and disability coverage if one partner should die or get ill.

6)Agreements as to shared maintenance or property improvement costs and workload on property upkeep.

7)What happens in the case of one party not being able to meet their monthly obligations.

Being in the business for over 29 years, I have had a lot of experience in accommodating this type of purchase. Divorced parents, widowed seniors, friends, couples, partners have all found this to be a good option for homeownership and in the case of widowed seniors a source of companionship.

The key to a successful purchase starts with absolute honesty and disclosure of each parties finances.You may know the other party but that relationship can be strained unless your define it carefully.

Together with a lawyer, we can advise you on the full overview of what you need to consider in your agreement.

The government has also changed the parameters under which borrowers can qualify for mortgages.You must have good credit and we have to examine your outside debt picture to ensure you meet the qualifying guidelines. There is an advantage in having a possible larger income pool for qualification.

Applications can be done online or in person in my office. Call 613-384-4000 ext 222 to set up an appointment. For any questions, please feel free to email me at brian@mtgprof.com

With housing prices increasing substantially over the past few years, joint ownership will become a more common solution for people wanting a better long-term alternative than costly rental accommodation.