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With the cost of homes in the GTA too far out of reach for most single Torontonians, co-ownership is an appealing option. But it’s not the only option. Lesli Gaynor of Forest Hill Real Estate takes us through the advantages of co-buying your first home and she reveals other options for purchasing your first home without putting yourself in a financial bind.
What's the most affordable way for first-time home-buyers to enter the Toronto real estate market?
I think there would be two answers to that question. My first answer would be to try and buy something that you can live in and work to make it your dream home. Buy below your expectations, but always remember that you can't mortgage renovations. You have to have capital, which is why people should take the slow approach to taking a property. Of course, if you take this approach, you’ll want to ensure there's nothing structurally wrong with it.
Come into the market with lower expectations and a willingness to get your hands dirty. Look for a diamond in the ruff and that's true across the board.
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But. even with that being said, it's such a hard market to get into for a couple of reasons: the new stress test, the land transfer tax -- which can add $40,000 to your purchase if you're buying over $1 million -- and the amount of down payment you have to have. If you're buying over $1 million, you have to have $200,000 and that's just your down payment.
This screams prohibitive. Who has $200,000 liquid cash available to put down on the down payment of a house? But if you divide that by four people you only have to have $50,000. Now that's a little more realistic.
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For my second answer, I suggest that you can leverage, strategize and combine funds and resources with more people than just yourself and your spouse or your partner, you can often find yourself in a better financial situation.
Then people say to me, “Oh my God! I don't want to co-live, I did that in university.” I respond with, don't live with people then. Make sure you have a private space. But we are so over-housed in North America, with the three bedrooms for the single couple or four bedrooms for the one family with a single kid, that you should really sit down and take a hard look at what you actually need.
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The rooms that cause the most tension are kitchens and bathrooms. There are lots of houses in the city that have been retrofitted for multiple units that were single-family dwellings at one point. If you look at properties that can be retrofitted, then you have more time to grow into the market.
This is how I bought my first house when I was 24-years-old. I knew I couldn't do it on my own. I never would've been able to come up with a down payment even then when houses were less money. So, I bought it together with my friend Anne.
Our income combined allowed us to qualify for a mortgage. We then looked at the down payment, which at the time was about $25,000. It was still a large sum of money, but we divided that in half and got some of the money from family. Eventually, we were able to buy the house.
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We had our own bedrooms, our own kitchens and our own bathrooms and eventually we were able to afford our own home as my family grew and she decided she wanted a different kind of property.
We both lived in the house for a number of years. The equity in the house grew and we had a legal agreement that stated we were both 50 percent owners of the house. We were both 50 percent responsible if the roof leaked. We were 50 percent responsible if a back door fell off its hinges, even if it wasn't my backdoor. But, if I wanted to renovate my kitchen because I didn't like my kitchen, that was my responsibility because it was in my unit. If I was doing something that was fundamentally going to change the value of the property, then we'd have to discuss it and figure out what kind of appreciation I would be recognized for on my improvement of the home.
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It's a bit complicated and we often asked lawyers to come in and figure out the equalization of payments -- which is what spouses have to do when they're separating. So, there are formulas for all of this. We actually had a shareholder's agreement I was the 50 percent shareholder in this property called, “28 Pearson Avenue” and so was Anne. We actually had a legal framework to work off of. It's no different than if we owned a business and that's how we treated it.
Whether you do what Anne and I did or not, financing your first home should be about a long-range plan. Think of it as a stepping stone. The first house may not be the perfect house, but rather one that you can live in while you build some equity. This can happen more easily if you combine and leverage your finances with some of your pals.
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