Is Home Co-ownership a Solution for Newcomers to Canada?

Co-ownership is a creative and increasingly popular home-buying solution for newcomers to Canada. Many immigrants are eager to buy a home in Canada, but can’t afford the financial costs alone. Co-ownership allows newcomers to combine resources, share costs, and enjoy the benefits of owning property in expensive cities like Toronto and Vancouver. Discover how shared ownership works and what to consider!

Becoming a homeowner is a goal for many immigrants to Canada. However, the high cost of down payments and mortgage financing force many newcomers to put their dreams on hold for years. High home costs may also force newcomers to make a costly secondary move to more affordable cities.

Saving for a large mortgage payment is one of the biggest challenges for newcomers. Home prices in the most popular cities in Canada remain high and out of reach of many Millennial and Gen Z immigrants. 

What is Home Co-ownership?

Co-ownership is a strategic home-buying solution and a direct path to real estate investment. It’s ideal for newcomers who may be priced out of the market even after living in Canada for years.

Historically, co-ownership involves friends, family members, or investors pooling their resources to buy a home to share. They own a property jointly, with each owning a percentage.

A homeownership deal is a legal and financial partnership where the co-owners share costs, responsibilities, and benefits. Deciding to renovate or sell the property typically requires the agreement of all co-owners. 

A recent Leger survey for RE/MAX Canada found that 50% of Canadians would consider alternative home-buying solutions. The survey found that 21% would consider co-ownership.

A 2023 Royal LePage survey showed that:

• 6% of Canadian homeowners co-own their home with someone other than their spouse or significant other.
• 89% of this group co-own with family members and 7% with friends.
• 76% of co-owners listed affordability as their motivation. That figure jumped to 83% among those aged 25 to 34 (Millenials and Gen Z).

Co-ownership involves careful planning, good communication, and legal safeguards to provide a healthy partnership. According to industry experts, following this recipe leads to successful co-ownership.

Down Payment Costs in Canada

Saving for a large down payment remains the number one challenge for newcomers looking to buy a home. For example, homes priced at $500,000 or less in Ontario require a minimum down payment of 5%. So, if you’re buying a house for $400,000, the minimum down payment would be $20,000 (5% of $400,000).

For Ontario homes between $500,000 and $1 million, the minimum down payment is 5% of the first $500,000 plus 10% of the remaining balance. So, if you buy an $800,000 home, the minimum down payment is $55,000 (5% of $500,000 plus 10% of $300,000).

For homes more than $1 million, you’ll need a 20% down payment.  So, if you buy a $1.5 million home, the minimum down payment would be $300,000 (20% of $1.5 million).

It’s easy to see how co-ownership makes it easier and faster to create a down payment.

Understanding Co-Ownership in Canada

Co-ownership in Canada is usually structured in two ways:

1. 1. Joint Tenancy: Each owner holds an equal share of the property with the right of survivorship. That means if one owner dies, their share passes automatically to the remaining co-owners.

2. Tenants in Common: Owners can hold unequal shares. They bequeath their share to a beneficiary of their choice instead of automatically transferring to other co-owners.

Know the Pros and Cons

Before you enter a co-ownership agreement, these are vital financial and legal steps to consider:

• Clarify each party’s contribution towards the down payment, mortgage payments, and ongoing expenses.
• Decide who manages day-to-day operations and how to divide duties
• Include buyout clauses and procedures for the party wanting to sell their share
• Create a way to resolve disputes
• Obtain legal advice when entering a co-ownership agreement.

Co-ownership with an Investment Company

In addition to co-owning a home with a family member or friend, companies such as Ourboro offer newcomers a path to homeownership. 

Co-investment companies invest in the property with homebuyers and reduce the need for a large down payment.

A recent survey of Ourboro co-owners found that 56% identify as racialized populations and 47% were born outside Canada.

“Buying your first home can be intimidating on a good day, let alone trying to navigate the current market conditions or explore financing options,” Nick Pope, Ourboro’s co-founder, told Prepare for Canada.

“It’s an emotional journey,” said Pope. “Having a professional co-ownership partner can make a big difference; taking the anxiety out of the process by having a dedicated person guide them.”

Investment Firm Faces the Same Co-Own Risks

An investment firm’s down payment contribution in co-ownership is an investment, not debt. The company, just like the homeowner, risks losing its investment if the home sells for less than the purchase price. 

Using Ourboro as an example, if you co-buy a $1,000,000 home with them to meet the 20% down payment requirement, the combined co-investment must be $200,000. The homeowner’s mortgage would then make up the remaining $800,000 (80% of the home’s value). 

If the newcomer homebuyer invests $80,000 (8% of the home value) and Ourboro invests $120,000 (12%), together you have a co-investment of $200,000 (20%).

As Ourboro points out, co-investment is a short-term home-buying solution that makes homeownership more accessible. It also offers long-term benefits through shared appreciation. As the property’s value increases, the homebuyer and Ourboro share the gains, creating a mutually beneficial arrangement to build wealth.

“We have such rigid expectations on what owning a home needs to look or feel like,” says Alex Kjorven, Ourboro’s Chief Product Officer. “But for many first-time homebuyers that don’t have access to generational wealth, it may not make sense to put all your savings into a home.”

“We’re excited to challenge existing norms and make co-buying a no-brainer for folks who understand that it doesn’t have to be all or nothing.” 

Whether you partner with family or friends or an investment firm like Ourboro, co-ownership can be a smart path to homeownership. This is particularly true in expensive cities like Toronto and Vancouver, where newcomers can be priced out of the housing market.