Can You Really Own This One Bedroom Condo in Toronto for Under $20K?

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Mentioned price: $19,650

Neighbourhood: Niagara

X Factor: The one bedroom apartment at 15 Stafford Street is open plan and airy, with a large window in the lounge and balconies accessed from either the bedroom or the lounge. It is located just south of King Street West, with public transport, groceries, restaurants, parks and cafes nearby.

This apartment is available for fractional ownership, the listing says, adding that the buyer does not need to qualify for a mortgage to build equity.

We speak with our expert real estate agent Othneil Litchmore to get an understanding of the real estate industry and this new style of real estate.

Why is it so priced?

According to the list, unit 513 is actually worth it $786,000. The company behind the property, Key, says it is selling 2.5 percent of the apartment, bringing the price to $19,650. Despite this small proportion, the buyer is referred to as an “owner-occupant” living in the home, according to Key’s website.

There is a “monthly payment” of $2,578.13, the listing adds. That figure includes maintenance costs (which appear on the list as $446) and property taxes ($2,508 per year, which works out to $209 per month). According to Key’s website, $50 is allocated to growing equity. The rest “covers rent for what you don’t already own,” which would be 97.5 percent of the unit. These payments are in addition to the deposit.

Advertised as a “co-ownership solution,” Key says the model starts at 2.5 percent ownership — helping people build wealth much earlier than they would if they were saving for a standard down payment (which can range from five to 20 percent). of the house price). Litchmore says this is one of many shared equity models emerging in response to a housing market out of reach for most people.

For example, several shared equity models designed to make it easier to enter the market are being used by the federal government’s nonprofit Options for Homes and the First-Time Home Buyer Incentive, he says. This listing notes that this is not a rent-to-own arrangement.

However, according to Litchmore, taking into account the current state of the market, the apartment’s market value and rents, “it’s not a good deal.”

Plus, the buyer of this property is actually more of an investor than a co-owner, Litchmore says, since their name isn’t on the title and they don’t have the legal rights of an owner “in a court of law.”

A spokesperson for Key, Lisa Cimini, tells the Star the benefits are to make the suite their own with adjustments and renovations, saying that since the buyer isn’t on the title, they don’t have to pay the costs associated with buying. and sell real estate. They can also move at short notice after the first year.

“The devil is in the details,” Litchmore says. “What they do is ask you to be sort of… a resident investor, where you are allowed to live in the property, you have some equity in the property… and then when you leave they will give you your equity , plus they will do some calculations on what the valuation is and give you some of the valuation as well.”

After three years, buyers can choose to take out the mortgage, if they wish, or continue to build equity over time, Cimini says. It would require the standard mortgage application process, she adds.

But when it comes to value, Litchmore points out that the last similar-sized unit sold in the building cost $755,000 in April. Therefore, he does not believe that the $786,000 price tag for unit 513 — and thus the 2.5 percent ownership price tag — is “fair” market value. In addition, he notes that unlike owning a home, where the owner borrows from the bank but keeps all the profits after the sale, in this scenario the buyer with the 2.5 percent stake would only receive a portion of the profits. . However, they should pay all property taxes and maintenance fees, he adds.

Cimini says that to determine the apartment’s value, “Key uses a third-party automated valuation model for homes that has been validated and stress-tested for precision by an appraiser for reliability and consistency of valuation results.”

To compare monthly payments of $2,578.13 to rents, Litchmore says that last year, one-bedroom units in the building were rented for $2,000 to $2,100 per month. Nothing has been rented out in the building this year, he says. Since maintenance costs and property taxes aren’t the responsibility of tenants, but are usually factored into rents, the monthly costs for 15 Stafford Street are relatively high, especially since only $50 goes toward building equity, Litchmore says. And both owners and renters enjoy the benefits of amenities that maintain the fees.

In addition, Litchmore notes that the owner-occupier may not be protected under the Residential Tenancies Act. According to Cimini, owner-occupiers and property owners sign a contractual agreement that protects the relationship.

Key’s website adds that based on the performance of Toronto’s real estate market over the past five years, equity is expected to grow 30 percent over the next five years. However, they note that there is always a risk that the value of the property will fall.

“If you’re someone who’s sat on the sidelines and watched the housing market between March 2020 and March 2022, you’ll think, ‘This is the most ridiculous, bulletproof surefire investment I’ve ever seen,’” Litchmore says, but the housing market ‘works in cycles’ and is currently leveling off.

Essentially, the buyer is investing their $19,650 here in hopes that the housing market will rise, he says, but the “real test” is to decide whether that down payment — and the extra monthly cost compared to rent — wouldn’t outperform if invested elsewhere, such as the stock market.

All in all, without a name on the title, Litchmore recommends that anyone interested hire an attorney to review the details.

“Make sure you know what you’re getting into,” he says. “You have to be clear about what it is and what it isn’t.”

Any tips for people looking at these kinds of places?

Litchmore recommends anyone looking for alternative ways to enter the housing market consider more established shared equity models such as Options for Homes or the First-Time Home Buyer Incentive. Alternatively, he would recommend buying a house between three and five friends.

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