Richard, Paul and Emma
Richard and Paul are long time friends who spent 5 years co-owning. They met in University, both studying architecture. After returning to Toronto and beginning their careers, they were both looking to buy their first home.
Richard was looking for something in the city within biking distance of the downtown core and ideally under $300K. Paul and Emma also were looking for something similar and also preferred a house to a condo. Since they were all architects, they wanted something they could improve, and change to suit them over time. They knew that they wouldn’t be able to afford a place on their own, and had a long history of living with roommates, so buying together seemed like an obvious way to get what they were looking for.
They thought a duplex with two separate units would work nicely. After extensive conversations detailing what they were looking for and their criteria, outlining who would be responsible for what, researching possible ownership structures and legalities, meeting with real estate agents, lawyers and mortgage brokers, they purchased a house that was divided into two units.
Prior to purchase, the trio finalized a co-ownership agreement detailing ownership (Richard owned 50% and Paul & Emma owned 50%), how finances and maintenance would be managed, as well as strategies to address any potential issues like separation or a desire to exit.
From a financial perspective, even though the purchase was 50% - 50% per family, the units were different sizes. Given this, each family paid “rent” to a joint account based on the value of the unit in the marketplace. The rent included a 15% premium to account for the mortgage, utilities and any house maintenance or unexpected expenditures. Financing was not difficult to arrange. Richard and team worked with a mortgage broker who was able to find them a mortgage.
They moved in 5 years ago
Richard moved into the main floor unit and Paul and Emma into the second floor unit. Through the years, they underwent a number of renovations: put insulation in, added a bedroom to the third floor attic, renovated one of the kitchens, and put in a common laundry in the basement.
When they converted the attic to an additional bedroom, Richard decided to contribute to the costs even though this was Paul & Emma’s unit. He wanted to benefit from the equity appreciation. This also shifted the balance of ‘rent’ being paid into the common bank account as the second-floor unit was now worth more. The team sat down once a month to review expenditures and discuss any upcoming projects or items that happened in the last month.
Four years in, Paul and Emma were expecting and the trio began to discuss exiting the arrangement. Needing more room with a baby on the way, Paul and Emma were interested in purchasing Richard's share and Richard wanted to purchase his own house. They had an independent evaluator value the house in order to establish a fair price and Paul and Emma re-mortgaged in order to purchase Richard’s half.
In order to cover their new larger mortgage, Paul & Emma severed Richard’s apartment into two. The new rental income from the basement and ground floor units is now enough to cover their mortgage. Richard has purchased a house independently with the funds from his sale to Paul and Emma.
Asked about whether or not he would do it again, Richard says “YES”. “You have to be open to negotiating and compromising as well as be willing to share your finances, but overall it was very valuable for all of us.”
In terms of recommendations for others, Richard suggests extensive screening to ensure that partners are compatible. It is important to discuss and agree how money and maintenance will be managed. As co-ownership is not common in Toronto, getting help from people who have done it before could save a lot of legwork and painful lessons. Finally, of course, “getting in as early as possible - the market is getting harder.”