As more and more young Canadians realize the dream of homeownership slip through their fingers as home prices skyrocket, a startup says it will help aspiring homebuyers find a property without a six-figure down payment or a huge mortgage. Enables you to step on the ladder.
The company, Toronto-based Key, is one of several newly formed firms that are experimenting with new ways for Canadians to access the real estate markets as owners or investors with modest savings.
Key, which has been mentored by former Bank of Canada governor Stephen Poloz, says its unique model offers will give homebuyers the ability to co-own and live in a property with a down payment of just 2.5 percent.
Based on the current price of the downtown Toronto condos the company is currently offering for co-ownership, buyers need only $15,000 for their 2.5 percent ownership stake, the company says.
The company says that nearly all 60 suites in its inventory are occupied, and about 100 people are joining the waiting list for new units daily. And despite just launching in Toronto, the company’s co-founders, CEOs Rob Richards and Dubois say they have worldwide ambitions because rising housing costs are an issue everywhere.
But some real estate experts warn that there are some red flags in the details of the company’s offering. Its complex model may not leave young home buyers in a better position, they warn.
Key did not share a sample copy of its co-ownership agreement, but it did agree to answer a list of questions submitted by Granthshala News in consultation with three real estate and mortgage professionals. Here’s what has come out.
What the company calls co-owners who live in “owner-resident” units. Each month, they pay an amount equal to the market rent of a comparable unit, whereby the company sets aside at least $50 per month as equity contributions that gradually build up the resident’s equity stake.
In a city where home price appreciation often outweighs people’s ability to save for a down payment, prime residents hold an equity share whose value will rapidly increase as the home appreciates, Dubois says. Huh.
By doing so, residents are “attaching themselves to the price, so that if the price keeps rising, at least they don’t run out of that capacity,” Poloz said in an interview with the Canadian Press (CP).
Poloz said he’s “passionate” on helping people who yearn for flexibility and the chance to own equity in something tangible, even if they aren’t rich or don’t have a lot of money, CP said.
In addition, as residents’ equity share increases, the monthly amount they pay to live in the unit decreases proportionately, the company says.
Another benefit: Residents have the ability to “customize and renovate” the unit they live in, the company says. Key also promises that residents will get the full value of any appreciation from the upgrades they financed.
After three years, residents have the option to purchase the unit, but are under no obligation to do so. After one year, they are free to walk away and redeem their equity at any time with two and a half months’ notice. Key says it will refund all equity contributions and any appreciation based on the current value of the suit as assessed by an independent third-party appraiser.
In this regard, Key’s model differs significantly from traditional rent-to-own agreements, where tenants ultimately have the obligation to purchase the property and lose all or part of the down payment if they are not able to do so. can.
The resident-owner is not on title, the company says. Instead, the unit’s occupants and property-owning investors sign an agreement that comes with an encumbrance, or claim against the home, Keys told Granthshala News via email.
“You have an enforceable contract that states your rights and your obligations,” says chief CEO and co-founder Rob Richards.
Still, all three real estate experts consulted by Granthshala News said who would be on the title one of the key questions to ask when considering co-owner or rent-to-own contracts.
If you’re not on title, you’re not really a homeowner, warns John Pasalis, president of Toronto-based Realosophy Realty.
The so-called owner-dwellers “may have the option to buy the property in the future under certain conditions, but that doesn’t make them the home owner today,” he said via email.
The company gives its residents what it calls a “real test of ownership:” an appreciation for increased home value, sharing in maintenance costs (taking their equity proportionately), and the ability to customize and renovate. .
When looking at rent-to-own agreements, one of the important questions to ask is whether the tenant’s down payment will be in a separate trust, says Melanie McAllister, co-founder of Intellimortgage.
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Rent-to-own is usually an alternative route to homeownership for people who cannot obtain financing due to bad credit or because they do not have enough money for a down payment. The idea is that a tenant will rent a house for a certain period of time, with the goal of buying the property at the end of the lease.
Key says it offers a co-ownership rather than a rent-to-own model, noting that its residents’ down payments tend to appreciate along with the value of the property, unlike many rent-to-own arrangements.
Yet, when it comes to the down payment, the company said the money, with subsequent equity contributions by the resident, goes to the investors who have title to the property.