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Co-Ownership to Deal With Affordability Challenges

It's no secret that homes in Metro Vancouver and the Fraser Valley housing markets are expensive. Affordability for buyers, especially first-time buyers, has gotten progressively worse over time. For this reason, more and more potential homebuyers in the Vancouver area housing markets are contemplating buying a condo, townhouse or single-family detached house together. In other words, through co-ownership, where every buyer gets a certain percentage share of ownership of the home.

Real estate company Royal Lepage Canada has recently released results of a survey they commissioned, showing some interesting facts about co-ownership. Click here for the report titled 

Canadians buying homes with family, friends to combat housing affordability woes

Highlites of this report included the following:

  • 76% of Canadian co-owners cite a lack of housing affordability as a major motivator for choosing to co-purchase a property
  • Almost one third (32%) of co-owners who were motivated by low affordability purchased their home after the Bank of Canada began raising interest rates in March of 2022
  • Nearly two-thirds (65%) of Canadian co-owners say they own a single-family detached property
  • 56% of co-owners co-own a home with their parent(s) or parent(s)-in-law; 18% co-own with their adult child(ren)
  • Nationally, 6% of homeowners co-own a property with someone other than their spouse


WHAT TO CONSIDER IF YOU ARE THINKING ABOUT CO-OWNING A HOME IN METRO VANCOUVER

Buying a home in the Lower Mainland or Fraser Valley through co-ownership can be a beneficial arrangement, but it also comes with its own set of considerations and potential challenges. Here are some key factors to keep in mind when thinking about co-owning a home:

1. Compatibility: Co-owning a home requires a strong level of compatibility and mutual understanding between the co-owners. Make sure you have compatible lifestyles, financial goals, and expectations for the property.

2. Legal Structure: There are different legal structures for co-ownership, such as joint tenancy and tenancy in common. Each has its own implications for ownership rights and responsibilities. Consult with legal professionals to determine the best structure for your situation.

3. Ownership Shares: Decide on the ownership shares each co-owner will have. This typically corresponds to the amount of financial contribution each person makes towards the purchase.

4. Finances: Clearly define how the purchase costs, ongoing expenses (mortgage, property taxes, maintenance, repairs), and potential profits or losses will be shared among the co-owners.

5. Mortgage: Determine how the mortgage will be handled. Will you co-apply for a mortgage, or will one person secure the mortgage while others contribute to the payments?

6. Exit Strategy: Plan for how you will handle situations where one co-owner wants to sell their share or exit the arrangement. Will the other co-owners have the first right of refusal to buy the departing owner's share?

7. Resale: Agree on how the property will be valued if a co-owner decides to sell their share. This can be based on current market value or an agreed-upon formula.

8. Decision-Making: Establish a process for making decisions about the property, such as renovations, repairs, or other significant changes. Determine whether decisions will be made by consensus, majority vote, or another method.

9. Use and Occupancy: Outline how the property will be used and occupied. If it's a vacation home, for instance, establish a fair way to allocate usage time.

10. Legal Agreements: Draft a legally binding agreement that outlines the terms and conditions of co-ownership, covering all aspects from financial contributions to dispute resolution. It's advisable to work with a lawyer experienced in real estate and co-ownership agreements.

11. Communication: Open and ongoing communication is essential for a successful co-ownership arrangement. Regularly discuss finances, property management, and any concerns that arise.

12. Insurance: Obtain appropriate insurance coverage for the property. This can include homeowners insurance and, if applicable, landlord insurance if you plan to rent out the property.

13. Contingency Planning: Consider potential scenarios, such as the death or incapacity of a co-owner. Address these scenarios in your legal agreements to prevent complications.

14. Personal Circumstances: Be aware that your personal circumstances might change over time, affecting your ability to contribute financially or occupy the property. Plan for these changes in advance.

15. Professional Advice: Seek guidance from legal, financial, and real estate professionals to ensure you have a clear understanding of your rights, responsibilities, and the potential risks involved.

IS CO-OWNING RIGHT FOR YOU?

Co-owning a home in the Vancouver or Fraser Valley real estate market can be a successful arrangement when approached thoughtfully and with clear communication. However, due diligence and comprehensive legal agreements are crucial to avoid potential disputes and ensure a smooth co-ownership experience. The values (and therefore stakes) are very high with an asset class as expensive as Metro Vancouver housing. It is important to carefully plan things out in advance. This will help to ensure that your friendships and family relationships can remain positive as co-owners before, during and after your time owning together.

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Sell a Home or Let Children Inherit It?

There are several reasons why a property owner might choose to sell their Metro Vancouver or Fraser Valley area real estate to transfer wealth, rather than letting their children inherit the property. Here are a few possible motivations:

  1. Financial Needs and Flexibility: Selling the property allows the property owner to access the wealth tied up in the real estate immediately. This can be particularly beneficial if they have immediate financial needs, such as funding retirement, paying off debts, or addressing medical expenses. Selling the property provides liquidity and flexibility to manage their financial situation effectively. Because Metro Vancouver real estate is so valuable, this can be a life-changing move.

  2. Diverse Portfolio: By selling the property, property owners can diversify their wealth and investments. Real estate is a significant asset class (especially in Metro Vancouver BC), and selling it allows them to redistribute their wealth across various investments, such as stocks, bonds, mutual funds, or other ventures. Diversification can help reduce risk and increase potential returns.

  3. Tax Considerations: In some cases, selling the property may have more favorable tax implications than passing it down as an inheritance. Tax laws vary by jurisdiction, and by selling the property, the owner may be able to take advantage of tax exemptions (i.e. principal residence), deductions, or lower capital gains taxes that may not be available to heirs. Consulting with tax professionals is crucial to fully understand the tax implications of different scenarios.

  4. Inheritance Equalization: Selling the property and distributing the proceeds among multiple children or beneficiaries can help achieve a more equitable distribution of wealth. If the property is valuable but not easily divisible among heirs, selling it allows for a fair division of the proceeds, avoiding potential conflicts or disputes among family members.

  5. Maintenance and Management Burden: Owning and managing real estate can come with ongoing responsibilities, such as maintenance, property taxes, and insurance. By selling the property, the owner can relieve themselves and their children of the burden of managing the property and its associated costs.

  6. Changing Circumstances or Preferences: The property owner's circumstances or preferences may have changed, and they may have a different vision for their children's inheritance. They might believe that providing their children with liquid assets (rather than real estate) will better serve their children's needs or aspirations. This could be due to the children's differing financial situations, geographical preferences, or personal goals.

It's important for Metro Vancouver and Fraser Valley area property owners to carefully evaluate their financial situation, tax implications, family dynamics, and personal goals when deciding whether to sell real estate to transfer wealth instead of letting their children inherit the property. Consulting with financial advisors and estate planning professionals can provide valuable insights and help make informed decisions.

If you believe that selling your residential real estate holdings is a viable move, please don't hesitate to contact me to receive a free comparative market evaluation. I can also outline my selling services to help you achieve the best sale price possible.

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