Co-ownership has emerged as a popular trend in the Canadian real estate market as Canadians explore innovative ways to enter the market and achieve their homeownership dreams. Co-ownership offers a unique solution, allowing individuals and entities to share the financial burden of purchasing a property while reaping the long-term appreciation of owning real estate.

Co-ownership not only provides a means to enter the housing market but also expands the possibilities for finding a more desirable location, achieving a larger home, or acquiring more property than one could afford individually.

According to a recent survey conducted by Royal LePage, approximately six percent of homeowners co-own their home with another party that does not include their spouse or significant other. Within this group, eighty-nine percent co-own with family members, primarily parents or in-laws, and seven percent with friends.

While multi-generational households have long been a part of Canadian living, this arrangement is gaining popularity for financial reasons, becoming the fastest-growing household type, according to Karen Yolevski, Chief Operating Officer of Royal LePage Real Estate Services Ltd.

While such households are traditionally formed to care for children and elderly parents, today, financial reasons drive many to opt for this arrangement. The Royal LePage poll revealed that seventy-six percent of co-owners pursued this arrangement due to their inability to afford a home on their own, with thirty-two percent attributing their decision to the Bank of Canada’s interest rate hikes that began in March 2022.

Types of Co-Ownership Arrangements:

To embark on co-ownership, your initial step should involve seeking advice from a reputable real estate lawyer and a mortgage broker. Gathering insights into structuring and financing your arrangement is essential.

There are two primary methods of co-owning property: joint tenancy and tenancy in common, although alternative options exist.

  1. Joint Tenancy: A joint tenancy setup involves all owners holding equal shares of the property. In the event of an owner’s passing, their share automatically transfers to the surviving co-owner(s). This arrangement is often used by spouses or partners, simplifying the inheritance process by bypassing probate.
  2. Tenancy in Common: Tenancy in common is the preferred option when co-owners want to hold unequal shares of the property, but all co-owners have an equal right to use the property. Ownership percentages can reflect everyone’s contribution. Often to sell a share of the property, the co-owner will need permission from the other owner. Typically, all co-owners must agree to sell the property. Proceeds from a sale are distributed based on ownership percentages. Should a co-owner pass away, their share is left to the beneficiary that they selected.

This arrangement is popular among friends, business partners, or individuals with different financial contributions. Clear communication and a well-drafted co-ownership agreement are crucial to avoid misunderstandings and conflicts. Again, legal and mortgage advice is essential to address potential scenarios like a co-owner wanting to bring in another occupant, and what happens should a co-owner lose their job or when one party wants to sell?

  1. Ownership through Corporations: Some individuals opt to co-own properties through corporations, where each shareholder owns a portion of the corporation, which in turn, owns the property. This approach can offer liability protection and tax benefits. It is commonly used in commercial real estate investments or when multiple investors collaborate to purchase a property. Ownership through corporations provides limited liability protection and flexibility in terms of adding or removing shareholders. However, it involves a complex setup, ongoing administrative requirements, and potential conflicts among shareholders.
  2. Condominium Corporations: While less common, co-owners can look at a condominium corporation where each person owns their unit and a share of common amenities. This ownership type can apply to smaller housing types such as units within a single house. Condominium owners must adhere to condominium by-laws and rules and can choose to participate in the board of directors. Each owner can sell or transfer their unit and secure their mortgage. Creating a condominium corporation entails multiple steps, including obtaining municipal planning approvals.

Important Considerations Associated with Co-Ownership:

When contemplating co-ownership, numerous factors must be carefully considered. Take your time to conduct thorough research and preparation:

  1. Selecting the Right Co-Ownership Partner: Choosing the right co-ownership partner is critical for a successful co-ownership arrangement, even when co-owning with family members. It’s important to consider factors such as shared goals, financial stability, and compatibility in terms of decision-making and property usage. Open and honest communication is essential, as is establishing clear rules and responsibilities.
  2. Financing Options: Co-ownership allows the pooling of financial resources, enabling better financing options. Joint mortgage applications enable co-owners to combine their incomes, increasing their borrowing capacity. Financial stability and reliability should be discussed among potential co-owners, as joint mortgages require all parties to individually cover the full monthly payment. The full payment needs to be made each time or everyone’s credit score could be impacted. A comprehensive understanding of each co-owner’s financial obligations and responsibilities is essential, as is considering creditor insurance for unforeseen events.
  1. Splitting Costs and Expenses: Co-owners must establish a fair and transparent system for splitting costs and expenses related to the property, including mortgage payments, property taxes, insurance, utilities, maintenance, and repairs. The co-ownership agreement should outline guidelines to prevent disputes or misunderstandings. Setting up a joint chequing account can facilitate cost management, with contributions used for bill payments and building a reserve for significant expenses like replacing windows, roofs, appliances, and furnaces.
  2. Separation or Sale of the Property: Planning for potential scenarios, such as disputes, one co-owner wanting to sell, or the sale of the property, is essential. Questions regarding property valuation, right of first refusal, and steps to dissolve the co-ownership partnership should be addressed in the co-ownership agreement. Exit strategies should also be included.

Formalizing the Partnership:

To safeguard the interests of all co-owners, formalize the co-ownership through legally binding agreements. A co-ownership agreement outlines each party’s rights and responsibilities, addresses potential disputes, and establishes a decision-making framework. Seeking legal advice during agreement drafting ensures that all legal and financial considerations are properly addressed.

Risks and Challenges of Co-Ownership:

While co-ownership offers many benefits, it also comes with its fair share of risks and challenges. Disagreements between co-owners, differing maintenance standards, and conflicting visions for the property can create tension within the partnership. Establishing open lines of communication, setting clear expectations, and having mechanisms in place to resolve conflicts can help mitigate these challenges.

Get Advice from Your Trusted Mississauga Mortgage Broker!

The increasing prevalence of co-ownership in real estate offers an opportunity to overcome homeownership barriers. With careful planning and effective communication, co-ownership can be a rewarding and cost-effective way to enter the real estate market in Mississauga, Toronto, and the Greater Toronto Area.

When engaging in a co-ownership arrangement, seeking guidance from professionals such as Joe Purewal, an experienced and top-rated Mississauga Mortgage Broker, is extremely important. Joe Purewal’s expertise can prove invaluable in navigating the complexities of obtaining a mortgage for a co-owned property. He can provide the necessary information, advice, and guidance to maximize the benefits of co-ownership while mitigating potential risks and challenges.

By combining careful planning, effective communication, and the best professional assistance, you can realize your real estate dreams through a successful and smooth co-ownership experience.

Title Tag: Co-Ownership Trends in Canadian Real Estate

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