Whether or not you’re in a committed relationship, it is so very important to be in charge of their building their personal wealth. Owning a home is the single most important investment you can make. It’s the cornerstone of a stable financial future.
Historically, Toronto housing prices have roughly doubled every 7 years. It’s always a good time to get in the market and interest rates are still low enough to help compensate for inflated markets. Despite this, it’s clear Toronto’s housing market is out of reach for many individual buyers. The cycle of paying rent can be a noxious one, especially when rent equals a mortgage payment. Imagine re-directing your monthly rent toward your own mortgage.
Get creative
You’re a resourceful gal, what you need are creative ways to get into the real estate market that doesn’t have to include a romantic partner. Think business partner instead. Your personal wealth could grow exponentially if you combine your resources with a partner to buy that first home or investment.
The concept of co-ownership and group buying has picked up momentum among female professionals. It’s an opportunity to own a proportionate share of a residence or building – as well as the mortgage, expenses and potential rental income.
Two recent clients purchased a triplex, a two-and-a-half storey home with main floor, upper level and basement units. The property boasted a private backyard in the heart of downtown Toronto, near iconic Trinity Bellwoods Park. This ‘fixer upper’ was purchased for $990,000 with the plan for the owners to renovate and each occupy the main and second floor units respectively. The basement unit is reserved for rental income and will go a long way towards covering your housing expenses. This is one of the most efficient ways to get yourself out of that rental unit and into something that is yours. It’s the classic ‘Think and Grow Rich’ plan and it’s happening all over Toronto.
Typical Financial Outlay:
Purchase price: $1,030,000
Down payment: $69,300 or 7%.
Closing costs: $30,000
Total cash outlay: $99,300
Expenses (Utilities, Insurance, property taxes): $12,000
Monthly Mortgage Payment: $4,570
Potential rental income (basement apartment): $1,400
(*Numbers are approximate)
Buying partners must understand that being completely transparent with one another regarding their credit, debt load, etc. will ease the process and give their agent and mortgage broker a better understanding of budget and financial picture. Multiple buyers (family/friends/investors) in a real estate transaction can become quite overwhelming for each borrower, as many factors come into play when qualifying. Lenders look at everything from income, to debt load, to assets and security. The amount of rental income will be taken into consideration.
Build an Iron-clad business/shareholders agreement
Aside from securing a mortgage, a business contract is the most important part of the transaction. Like in any business partnership, a contract spells out the rules of engagement. It should cover important details such as whether or not you will cohabitate and proportionate share of ownership. It’s entirely possible that one partner may contribute a larger down payment, while the other may have better credit, higher income, etc.,all of which contribute to mortgage qualification. Other important details include how expenses are paid, household improvements and who is doing the work. A five-year plan is recommended.
Equally as important is the exit strategy, it’s best to work out well in advance what happens when a partner decides to cash in their share, or otherwise pull out equity. Typically, the existing partners get first right-of-refusal to buy out the exiting partner. Be sure to connect with a lawyer when drafting the agreement, particularly regarding how fees are calculated when a partner assumes full ownership.
Think co-owning a home might be a possibility? There’s lots to consider, but a lot to be gained, so it’s worth a conversation. Let’s get together over coffee and talk about how that all-important home purchase could be in your future.