Buy Sell Love Durham

Connection, Empathy and Change in Real Estate

Turn Renters into Homeowners

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Young couple standing in front of a home that is for sale. Featured image for a blog by Lindsay Smith, Buy Sell Love Durham about what you need to know about making an offer on a power-of-sale home.

How does a young person get ahead with Real Estate prices as high as they are? Surprisingly, it may be simpler than you think.

Let’s sidestep the high cost of homes for a minute and review what it costs to rent an apartment in 2024. A quick search showed a 1-bedroom basement apartment was recently rented for $1,900/month and with the added utilities and yard maintenance the total for the tenant would end up around $2,100/month. This is what a younger person would need to pay to get a decent apartment in town. Costs of renting an apartment in Canada have been escalating with the average rental jumping over $400/month since 2017. If we dig in and look at what some available options are for renters to become homeowners, here are a few ideas.

The first thought that comes to mind is “co-ownership.” My son currently rents a home with another renter, and they split the cost of the property. If a renter could come up with a downpayment, they may be able to purchase a property rather than rent with their rents going to pay down the landlord’s mortgage.

An example would be a semi-detached home that sold over the weekend in Oshawa. It ended up selling for $610,000 so assuming 2 individuals could come up with a downpayment of $60,000 ($30,000 per person) the carrying cost of the entire home with taxes, mortgage and home insurance would be around $4,000 / month. This is roughly the same as they would be paying in rent and by adding in the utilities, they would each be paying a total of $2,250/month. Looking past the financial benefits, they would be sharing an entire home, not 1-bedroom basement apartments individually. The real benefits come with the value of the home increasing and the mortgage being paid down.

Making a few assumptions, one that the mortgage would be a 3-year term, at the end of the 3 years, the owners would have paid $40,000 off the mortgage. Again, assuming the values increased marginally, at 5% per year the home would have increased from $610,000 to $706,000!

If they decided to sell after 3 short years, they would have built up $136,000 in equity and adding their original downpayment back they would end up splitting just under $200,000! That would leave them with a downpayment investment of $30,000 returning $100,000.

Of course, this does not include costs to sell but the math works even when you use a low expectation of increasing values. Years ago, I had a client who did just this and rather than sell the home, her partner bought her out by  increasing the mortgage and returning her net proceeds which she turned around and purchased a home with the person she was dating and it ultimately became their family home.

Another option is for a parent to be the “co-owner” of the property with the funds used for a downpayment coming from the parent increasing the mortgage on their current home.

When I started my career the values were dramatically lower and it was easier to enter the home ownership market and with todays high values, sometimes a Buyer needs to get creative to get their foot in the door. Since I began selling homes in 1986, I have seen 3 downturns in value and the last one is what we are just emerging from. What ends up happening is that Buyers gain confidence in the market and start to buy and when the waves of Buyers flood the market, the values spike. We are at a point where the downward curve of the economic cycle is about to turn upwards and with that activity comes higher prices. This is what Warren Buffett calls a “window of opportunity.”

If you are curious about selling or buying in todays market, I can be reached at lindsay@buyselllove.ca or 905-743-5555.

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