TORONTO – When Jeremy Campbell purchased a house in Ladner, B.C., with his sister and her husband in 2010, it was meant to be a temporary arrangement until he could upgrade to a place of his own.
“The initial plan was to do this short term just to get into the market, build some equity … get my foot in the door,” says Campbell, who covered one third of the down payment on a 2,000 square-foot home that’s split into two suites.
But with home prices in the Lower Mainland’s red-hot real estate market soaring, Campbell says they’re thinking of staying put.
“We’ll invest in the house to expand it versus selling and going our separate ways,” says Campbell, noting that a renovation is needed to accommodate the growing family, which now includes his fiancee, their new dog and his two-year-old niece.
Experts say an increasing number of first-time homebuyers are contemplating arrangements like Campbell’s as sky-high prices in markets such as Toronto and Vancouver have eroded affordability.
A recent RBC poll found that roughly one in four millennials would consider purchasing a home with a friend — up from only 11.7 per cent the previous year.
The number of young buyers who would consider going in on the purchase with a family member was 24 per cent, up from 14.7 per cent in 2015, the survey said.
“Particularly in some of the larger markets in Canada, affording that first home or condo is increasingly more challenging,” says Erica Nielsen, vice-president of home equity finance at RBC.
In addition to higher prices, premiums for mortgage default insurance have risen, presenting an additional obstacle for first-time buyers, Nielsen adds.
The online survey of 2,000 Canadians was conducted by Ipsos on RBC’s behalf between Jan. 28 and Feb. 4. The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error because they do not randomly sample the population.
While many co-purchases involve both parties living together in the home, that isn’t always the case.
When Richard Wiebe bought a $340,000 two-storey house in Toronto’s east end with a close friend in 2012, they each paid half of the down payment and agreed to split the cost of all of expenses and any capital gains when they sell.
But only Wiebe lives in the home. For his friend, the transaction is purely an investment.
“I consider him my platonic husband because we own a house together,” quips Wiebe.
“It’s an awesome way to get into the market sooner without having to find ‘The One.'”
Experts caution that such arrangements come with risks.
“When you purchase an asset together, it’s basically like starting a business together,” says Chantel Chapman, financial fitness coach at online lender Mogo Finance Technology.
“There are going to be points in time where things might not be amazing, and you need to account for that.”
Chapman recommends working with a lawyer and drafting up a written plan that outlines everything from what happens if one party wants to sell to how the cost of repairs will be split.
“Your name and your credit file is attached to that debt, so if the partner you are purchasing with loses their job or something happens and they can’t make their part of the mortgage payments … that’s going to impact you, as well,” says Chapman.
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