Canadians find ways to get around high house prices

Some seem willing to sacrifice peace of mind for affordability

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Even with housing experts like the Canadian Real Estate Association claiming that the national real estate market is “moderating” after two straight months of declining sales, it’s hard to imagine a realistic scenario where house prices are stagnant or stagnant. fall.

With prices out of reach, it’s no surprise that homebuyers are looking for creative ways to get at least one foot on the property ladder.

A recent Re / Max survey reveals that Canadian homeowners are considering three non-traditional strategies to increase their chances of owning a home. All three are achievable, but each comes with its share of friction and uncertainty.

Re / Max survey results

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The survey portion of Re / Max’s 2021 Housing Affordability Report, based on an online survey of 1,539 Canadians, found that homebuyers face an increasing number of challenges in affording their own. House.

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More than a quarter of those surveyed, 26%, attribute a lack of pay to their personal inability to buy. Fear of having poor housing (18%) and eventually having to pay higher interest rates (18%) were also major concerns. The lack of stable employment (16%), the already high household debt (11%) and the mortgage stress test (11%) are also perceived as obstacles by the respondents.

The 41 percent of survey participants who cannot afford to own a home share several characteristics: 60 percent are between the ages of 18 and 34, which puts them in what has traditionally been a group low income demographic; 48 percent of them live in urban areas, where rents tend to be higher and can erode savings; and 70 percent of them earn less than $ 40,000 a year.

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A combination of necessity, desperation and ingenuity inspired 33% of those surveyed to look for other ways to secure a property. A significant percentage (21%) have explored the idea of ​​renting out part of their primary residence, while 13% plan to pool their finances with friends or family, and 7% plan to live with neighbors in a cooperative. or cohabitation.

“Creative solutions for affordable homeownership won’t get us any further, nor will ‘stopper-size’ measures such as the mortgage stress test,” said Christopher Alexander, director of strategy and executive vice-president of Re / Max of Ontario. Atlantic Canada. “It shouldn’t be the burden of the next generation of home buyers to figure out how to ‘get around’ the supply shortage and resulting affordability crisis when there are workable and long-term solutions within reach. tomorrow. “

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But how feasible are these workarounds, especially for inexperienced first-time homebuyers?

Rent part of a main residence

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Of the three alternatives that buyers seem to be trying, going the investor route and finding a tenant for part of your home after you buy it is the easiest. Renting an Airbnb-style room or basement suite on a longer-term lease can make it easier to cover your mortgage payments, but it’s not that simple.

The main problem with this strategy is that you have to buy a house before you can put it into practice. To do this, you will need to convince someone to give you a mortgage.

Lenders will certainly take into account the rental income your property will generate in determining how much they will loan you, but most will want to know that your rental unit is legal. A spare bedroom may not qualify, and even the income generated by a legal basement suite isn’t always a game-changer.

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Assuming you walk into a house and rent part of it, you still need to do it right.

“You want to make sure that you are renting to quality tenants who are financially qualified. Make sure you understand the Landlord Tenant Act. You also need to make sure that you are reporting your taxes correctly, because if you are generating income from your property, you have to report it as income, ”Alexander told MoneyWise.

“You will also need tenant insurance and a good insurance policy for yourself. “

Purchase with friends or family

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Not everyone has parents who can or want to give them the funds for a down payment. In such cases, condominium with family or friends might be a more attractive choice.

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Providing half, or a third, of a down payment certainly sounds easier than tinkering with it all. But any time a property has multiple names on a title, and it’s not immediate spouses or relatives like parents and children, things can turn upside down if a owner change.

“As long as you are documented and have good lawyers, it wouldn’t be that complicated. You just need to be aware that there might be land transfer tax payable if you are going to break the title, ”says Alexander.

“If you’re not on the title, you want to have a clear partnership agreement with the person you’re buying from so that if there is a sale, the product gets to you as stated in the agreement. . “

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“Owner” of part of a housing cooperative

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The Re / Max report does not go into detail with regard to cooperatives. Assuming this is a traditional co-op, this is an odd choice for anyone trying to break into the housing market.

You don’t really buy a co-op, you buy one. Typically, you buy a share in a company that owns a property and then get exclusive use of one of its units. In some co-ops, you may not even earn any equity while you own your share because the building is rented and not owned by the corporation.

If you are ready for an unconventional housing situation with a more social aspect, a co-op may be for you. However, the community nature of the purchase shouldn’t prevent you from carefully reviewing the documents you are asked to sign.

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“You have to be extremely careful and make sure you’re on the verge of making a deal with the co-op,” says Alexander, “because there are a lot more moving parts when you have an arrangement like this. . My advice would be to make sure you have a very good co-operation or partnership agreement that protects you in the event of a falling out with other ownership groups.

This article was created by Wise Publishing, Inc., which provides clear, reliable information people can use to take control of their finances. Millions of readers across North America rely on the Toronto-based company to help them save money, find the best bank accounts, get the best mortgage rates, and navigate many other financial matters.

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