Mortgage broker Angela Calla advises her clients to tread carefully when buying property with a friend. A lot can change over the years of a friendship, particularly when new romantic partners come into the picture and alter someone’s financial priorities. The advice comes from a place of experience – Ms. Calla and a friend went through this themselves and ended up selling their property for a loss, straining the friendship along the way.
“Make sure you have a legal document in place with your purchase agreement that makes clear your enter strategy and exit strategy,” says the Port Coquitlam, B.C.-based author of The Mortgage Code. “Going through that process and having that agreement will give you that clarity.”
Ms. Calla is one of many in the real estate world who have seen an increase in non-traditional home-buying partnerships as purchase prices increase. Often it’s friends or siblings pooling money to get a foothold in a market where homes are increasingly out of reach for first-time buyers.
An Abacus Data survey released in late March found that 86 per cent of 2,000 people surveyed said “home ownership accessibility” is a moderate or major problem.
“This view is shared by Canadians in all parts of the country, across all age groups, and across the political spectrum. But we do find that those living in B.C. and Ontario are somewhat more likely to feel housing inaccessibility is a major problem than those in other parts of the country,” stated a release about the survey, which was commissioned by real estate tech firm Key and conducted in February.
A Statistics Canada report released last fall that looked at home buyers from British Columbia, New Brunswick and Nova Scotia found buyers in groups of three or more made up 10 per cent of B.C. home buyers, and roughly 4 per cent in the other provinces.
Ms. Calla says people considering such partnerships should think about more than just the money the other person brings to the table. She and other experts suggest creating a detailed legal agreement that lays out how things will play out in scenarios, including if someone wants out of the partnership, if someone wants to sell the property but the other owners don’t, and if someone dies.
She says the agreement should include the resolution process to be used in the case of a dispute, and even details as small as what realtor will be used for a sale. “If one person is going to buy the other person out, what metric are they going to use? Two appraisals, one appraisal, a bank appraisal, or market-value appraisal? If you’re mature enough to discuss it upfront then that is your foundation.”
Mark Weisleder, senior partner at Real Estate Lawyers.ca LLP, headquartered in Vaughan, Ont., says a legal agreement for a shared home purchase should also spell out how much of the property each person owns. He advises clients to try to get their name on the title even if they’re only contributing a small amount, and says the legal agreement can spell out who owns 10 per cent and who owns 90 per cent, for example.
He says such agreements cost between $1,500 and $4,000, depending on their complexity, a small fee compared with the costs of hashing those things out in court later. Those legal costs could run from about $20,000, if one party wants to force the sale of a property, to more than $100,000 for a complicated dispute involving numerous people.
“Like any partnership agreement, you hope you put it in the drawer and never have to look at it again,” he says.
Family lawyer Laura Paris encourages co-buyers to think about how their assets and family status have the potential to intertwine. She says two buyers living together could be perceived as a spousal relationship, which could allow the partner with less money to make a claim for support if the relationship ended. She says the legal agreement should include language making it clear that family law would not apply to the property.
“It’s not to say these claims will come to success,” says Ms. Paris, an associate at Shulman & Partners LLP in Toronto. “The purpose of these agreements are … to make sure nobody could ever make that claim against you.”
Ms. Calla, the mortgage expert, also advises co-buyers to get life and disability insurance policies with each other as the beneficiary, to make sure costs continue to be covered if something happens to one partner. As for the mortgage itself, she says it’s rare to see lenders approve mortgages with more than four people on the title, but as long as all partners have good credit, the process for getting a mortgage with a friend or sibling is fairly similar to doing so with a romantic partner.
“The traditional lenders are fine with it,” she says, adding, “They do ask about the relationship.”
Software developer Usama Iqbal, 33, is in the market to buy a Toronto condo with his brother and his brother’s wife. The purchase would be an investment to get his foot in the door, so they could sell down the road and have down payments for two homes. “My dream place is anything with a backyard at this point,” says Mr. Iqbal, who lives in a rented 500-square-foot condo.
While they haven’t yet laid out a legal partnership agreement, Mr. Iqbal says they’ve done lots of talking about what they’ll do in various situations. He’s learned from the experience of a co-worker in a shared ownership arrangement.
“They were running into that scenario where one wanted out but the others couldn’t buy him out. That got me thinking, let’s talk about all of these things.”
(This article is courtesy of The Globe and Mail)
Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages.
In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.
Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at email@example.com or at 604-802-3983.
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