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You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.

ROB: People who feel locked out of the housing market are ready to flip the script to get their foot in the door.

ROMA: Most people buy homes with their partners - or by themselves. But others are ditching the traditional paradigm. They’re teaming up with friends or family in order to afford a home.

ROB: Welcome to Stress Test, a personal finance podcast for Millennials and Gen Z.

ROMA: I’m Roma Luciw, personal finance editor at The Globe and Mail.

ROB: And I’m Rob Carrick, personal finance columnist at the Globe.

ROMA: Somehow, we’re almost done another season. Thank you so much for all your support - please keep rating us and sharing our episodes with your friends. The bottom line for both Rob and I? We love hearing from you.

ROB: Today we’re talking about unconventional homebuyers: siblings, friends or family members that join forces to get into the property market.

ROMA: Co-ownership with friends and family isn’t new. Living with extended family is common in some cultures, and group buying is more common among new Canadians. We also heard from people who bought with friends back in the 70s and 80s when we asked readers to share stories for this episode.

ROB: But what IS new is the volume of people considering this as a way to get into the market. Roma, what’s driving the trend?

ROMA: Well, it comes down to housing. High prices, and the fear of missing out on these gains. Twenties are a particularly precarious decade. You’ve just graduated, you might have student debt, your career is not established. You’re not earning a lot, you could be moving cities. You haven’t been in a position to save up much of a down payment. Despite all that young adults really want in on housing and their backs are against a wall. They’re looking for solutions and oneof the solutions is co-owning a home. Sharing the down payment and mortgage payments to make it more affordable. Rob, what is the data behind this trend?

ROB: Well, there was a  remax survey last fall, 1/3 Canadians said they’re considering alternative ways to buy a house, such as pooling money with friends and family. Half the people who said they’d consider it were Millennials. Another survey this spring, Abacus found 9 in 10 people thought co-ownership would make housing more affordable. The fact is that it’s not an ideal solution, let’s be frank. People are best off owning their own houses. But prices are so high and it’s so hard to save a down payment. Rising mortgage rates are making the payments expensive. We need solutions and obviously people are opening their minds to it. Would you do it Roma?

ROMA: It’s hard to say whether I’d do it. In my 20s I would likely have considered it, but I think one of the things that changed about the housing market is I don’t think I felt this frenetic need to buy a home in my 20s. I was content to wait until the time was right for me. You and I both know a lot of things can change over the course of a lifetime. When you’re buying at a stage in your life like this when you’re a young adult, you need to understand that you could start a family, you could move cities, you could enter this agreement with different down payment amounts. How are you going to handle dividing up this house? The one thing that’s clear to both of us is that you need a very clear legal document and exit strategy that everyone agrees to before you enter something like this. Not just to protect your financial situation but also your friendship or relationship with your family.

ROB: Ya I would think when you get into a deal like this, you have to think what happens if it breaks down for good reasons like you got a promotion in another city or bad reasons like you just can’t get along anymore.

ROMA: Well let’s dig into this topic. It’s certainly something we’re going to be seeing more of in the coming years. After the break, we hear from two sisters who are trying to buy a house together – and who are struggling to get into the market even after joining forces.

SUCHI: My name is Suchi. I’m 26 years old and I’m located in Oshawa, Ontario.

ANU: Hi, my name is Anushree, 24 years old.

ROB: Suchi and Anushree, Anu for short, don’t want to live with their parents forever, but they can’t afford to buy alone. They decided to team up to find a place in Oshawa, a city of about 170,000 people on the eastern edge of the Greater Toronto Area.

SUCHI: Well, one, we’re both fortunately, unfortunately, are single. So we don’t really have another partner that we can truly buy a home for. And it’s something we just sort of agreed upon, it was just natural. With the current market, it’s almost impossible for someone not making six figures to even get a proper loan. So it became a mutual agreement that we both will look for something that we both will own. One biggest goal is to truly become purely independent. We have lived on our own when we were studying but that’s it really. After that, and also COVID sort of threw us back into the loop. Okay, we’re comfortable here. Let’s just try it. So it became a mutual agreement that we’ll just buy something together. So something we both can easily afford at that point and own together.

ANU: I think people in today’s society feels you need to move on, you cannot live with your parents, you know, I think is one of the stereotypes after age 20 or 22 you need to become more independent. And I feel like I’m in the same boat as that. You know, I have reached at an age where, you know, I don’t need to live under my parent’s roof. I can afford things I can do things my own. And I think this is the time for me to buy the house.

SUCHI: My, our, real estate agent is the same person helped my parents buy their new home, so that he has known us for a good seven years now. So it wasn’t a big deal for him. In fact, he actually recommended it is like it’s better if you guys buy something together then you know, individually, just because of the way the market’s going. And again, we don’t really have any partners at that point. So we just mutually agreed. Okay, we’ll go ahead for this.

ROB: Suchi makes $70,000 annually as a project manager and Anu makes $54,000 as a health and safety technician. They’ve managed to save about $130,000 for a downpayment – they don’t pay rent at their parents’ house, but they do cover the cost of groceries and the internet. They started their search a year and a half ago.

SUCHI: At that time, our goal was nothing beyond I think 800k. And we were approved for 620k at that point. Right now, our budget’s I think a million, just over a million if we need to, and we have been approved for 800K. Again, the aim is if you can put 20 down, then it’s easier to get the remaining 80%. We don’t want to but worst case if we needed assistance from our parents, they would not hesitate.

ROB: Their budget may have gone up in the past year, but Anu says their expectations have gone down.

ANU: So initially we were looking for a big house you know, with four bedrooms, three bathrooms, basement finished in a properly in place. But again, as you start searching for, you know, the bigger picture of the house that you want, you will never find the perfect house so to speak. There’s always going to be deficiencies in the house. But I think we initially wanted to look for a big house, you know, with big guard in the basement completed with four bedrooms, finished bathrooms, and then you know, have a place like a proper bedroom on the main floor. That was the idea and again, as you start searching for houses, your list kind of gets narrowed down, you don’t keep in mind what you’re looking for. It’s what they’re offering you.

ROB: So far they’ve looked at more than 50 houses - detached, semi-detached, bungalows. It’s a family affair.

ANU: We usually go as a family together. I feel like my mom and dad have more experience looking at houses than Suchi and I. So we go as a family, we first look at the outdoor look at the parking lot is it well built? We look at the surrounding. Is there any water leakage? You know, is the basement above the ground level? How are the windows setup? And then we go inside the house we look at you know, any water damage? The flooring? Any noise sound? You know, we look at the furnace room? How old is it? How many was it? How much more money you got to pay because the older the furnace you got to repair them put in more money to get a new furnace. And so we look at the wiring system, we look at everything. If we all end up liking the house, we have a big discussion when we come back home. And then we kind of go into a little bit of what did you like about the house? What didn’t you not like about the house? And as a family, we kind of decide, okay, let’s put an offer for this amount of money. And then if we have to we can go above this much. And that’s about it. So it’s a collective decision as a family.

ROB: And the sisters don’t always agree on what they want.

SUCHI: I think I like to compromise a bit more than Anu does. I again, I’m aware I’m more realistic versus optimistic. So I’m like, You know what? This is okay. I can make adjustment to this. I’ll deal with it. There’s been a few times I think, where I was like, You know what, this is good enough. Anu is more emotional also versus I am. So she wants I guess that feeling that moment you enter that this is it. So if she doesn’t get that and she’s extremely you can tell by her face. She’s extremely hesitant, no matter how many good things I say about it. I think a few times, I think twice, we still decided to go ahead and put an offer for that house because she was the only one who had the hesitancy.

ANU: I like to save money. I don’t want to use money in it. I always look at a house you know is the house well done. If that’s the case, then we can potentially put an offer to it. If we look at a house which is not repaired at all, you got to pay more money out of your pocket to repair the house, make it look more decent. And then again, move you have how much saving Are you going to have once you spend that amount of money repairing stuff. So do you want to take that route? And I am the person where I don’t use money. And we had the multiple times happening. I’m always the no, no, no person.

SUCHI: We had this one house, it was a complete fixer upper. Like I think 100k was the estimate that we had assumed that we would have to put in because it was built in the 80s I think. No one had done anything to it. They had like the microwave was from the 80s, the oven was from the 80s, not a single thing was done. They had the small TV radio in their kitchen that probably existed in the 80s and 90s. We decided to still go ahead and because I think that was a house, but we were like, this is it. We know we have to put so much money and fix it. This is it. But I think like a house got sold for like 1.1 million.

ROB: Suchi and Anu have made offers on five houses. Each house had multiple offers. The sisters raised their price on three of them, but they were out-bid every time.

ANU: It’s always been a war, right? Because people want to buy houses now. That’s like, no, this is your time now. And if we’re not putting enough money in, you get disappointed but agin you’ve got to look at your limit. How much can you put in? How much can you afford? If you go beyond that amount, then you’ve got to struggle a bit, you know, get more helpers to help you with the house. It’s not the greatest feeling. But again, it’s the process for both of us to learn and have the experience going forward of what we need to keep in mind.

ROB: Suchi is hopeful that rising interest rates will slow down the housing market and force people to stop bidding $300 or $400,000 over the asking price. She’s less optimistic than she was when they started hunting, but she’s ready to settle just to get into the market.

SUCHI: You know, we were very optimistic. We were excited. That excitement is now just sort of dwindled down to, okay, compromising I guess is the right word for it. Like even if this doesn’t work out, maybe we can do this or that. So I think that’s the stage I’ve sort of got to right now.

ROB: The sisters continue their search this summer. But they still have a few more things to talk about before signing the dotted line – including what happens if one of them finds a relationship.

ANU: We have not discussed that. And I think we need to have a chat. Because at the end of the day, we both have reached at an age where we were looking for somebody and I don’t want to be the third wheel, so to speak. If that happens, that she ends up finding a man before me, and I think I’ll move out. And I think I’ll let that place be their place. I think I’m just that kind of a person.

ROB: Up next, we’ll hear from a mortgage broker on the increasing number of siblings co-buying homes and why legal agreements are critical for those considering buying as a group.

ROMA: Leah Zlatkin is a mortgage broker at Mortgage Outlet and an expert at LowestRates.ca. So Leah, traditionally, Canadians buy homes with their partners, or increasingly over the years, they’ve been buying them alone. But what we’re seeing now is an uptick in cases where unconventional groups, say siblings or friends, are teaming up to buy a property. I mean, clearly price is driving this. Tell me a bit about what you’re seeing out there.

LEAH: Absolutely. So I would certainly say that many Canadians who are struggling to get a foothold in the housing market are starting to look for other means to buy a home. And in these kinds of cases, absolutely, you know, partnering with a friend or a family member is an interesting and new way to get into the housing market. I mean, traditionally, some of the people who would have been partnering with other people in the past to buy a home would be parents and their children, or you know, two siblings, but we are starting to see an emergence of people buying with friends. And we certainly are starting to see multiple families living in a home or purchasing a home together. So that might be two siblings purchasing a home together with their families. Or it might even be mom and dad, helping, you know, son, son and his wife buy a home along with their kids. So maybe the nuclear family is living in the top two floors, and the parents are living in an ensuite basement unit. So we are starting to see a little bit more of this.

ROMA: What groups of people are you seeing doing this most often?

LEAH: Realistically, we’re looking at younger Canadians and I don’t necessarily mean younger in terms of age, I mean, early entrants into their careers. So somebody who is just starting to establish themselves in their career, maybe they’ve been formally working for the last two or three years, maybe they’ve had unconventional income, maybe they’ve had a challenge with COVID, where they were on CERB, or they lost their employment for a period of time, or they even switched to a new form of employment, like contract work over the course of the last two years. So somebody who’s sort of in the infancy of their career is going to have a much harder time qualifying for a mortgage, and thus might be starting to look for other opportunities to buy a home and get into the market while they still can.

ROMA: Okay, so you’re seeing siblings, friends with maybe supporting roles from older Canadians. How often are you seeing this kind of unconventional buyer pop up in your role as a mortgage broker?

LEAH: Generally my clients don’t fall into this category, but I am starting to see maybe 1 to 5% of clients fitting in this category where they’re buying with multiple people. You’ve got a maximum of four people on a mortgage. So you can’t really go above that four, but I am starting to see people buying with their parents or buying with their siblings. I haven’t seen a lot of groups of friends. So, when you’ve got four friends buying a home together, you have to ask yourself as one of those friends, where do I see myself in five years, and do my co-purchasers or the other people who I’m going to buy with, where do they see themselves in five years. If we’re all single, and we’re all working in our first jobs, it’s very likely that in the next five years, maybe some of us aren’t going to be single anymore, maybe some of us aren’t going to be working in the same jobs, maybe we’re going to be remote, maybe we’re going to be in a different province, maybe we’re going to be in a different neighborhood. Life changes may occur. And when those life changes occur, you have to imagine whether the other people can survive paying the mortgage and can survive without that third or fourth person living in the home. If they were to move out, well, can we afford to buy that person out of their share of the home. If we’re already struggling to qualify for a mortgage individually, we may not be able to afford to buy out that person. So when you’re thinking about these kinds of situations where you’re purchasing with multiple people, you really do need to think about, are we still going to be friends in five years? Are we still going to want to live together? And are their life circumstances that may change our desires? And at that point, what is our contingency plan? So if you’ve thought that through, certainly, this is an option for you, but I would suggest talking to a lawyer and working out some sort of formal agreement for what happens if somebody’s lifestyle changes, and they need to get out of the situation.

ROMA: So you’ve touched on so many things in that answer that lead to questions I have. So you’re thinking about buying with friends, or siblings, what are some of the top things to keep in mind or think about when you’re trying to decide whether this is the route you want to go?

LEAH: Certainly, I think buying with family is a safer bet. And the reason why I say that is because I think inherently with family, most people will stay connected with their family despite arguments, despite disagreements, despite lifestyle changes. Whereas with friends, sometimes those relationships are a little bit easier to fracture. So with family, I think it’s a little bit easier to blur those lines of borrowing, lending money and sharing money amongst yourselves. Whereas with friends, I think that’s a bit of a more dramatic stop point. With friends, you need to have very frank conversations upfront about what you are comfortable with, and what is going to happen if people’s circumstances change. And you need to talk through all the circumstances because it could be a job, it could be a marriage, it could be a separation, it could be any number of things that would change the dynamics or change the relationship in the home.

ROMA: Okay, let’s talk a bit about the need to speak with a lawyer and what kind of things should be included in an agreement that’s legally binding?

LEAH: Ya 100%. So this is a really important point to touch on. You certainly do want to talk to a lawyer if you’re thinking about entering into an agreement where you’re purchasing a home with other people. You know, whether that be in a marriage or whether that be in a friendship or with family, it is always best to consult a legal professional. You want to talk through some circumstances. Some of the big ones that come to mind are what happens in the case of someone’s death? God forbid, if somebody who’s entered into the agreement passes away, how does the home transfer ownership? Can the people afford to pay the mortgage without that person? Is their insurance already active? Have they thought about the consequences of a death potentially? And you need to have this all written out. So if somebody decides to leave the agreement, how much are you purchasing the home off of them for? Is it based on present value? Is it based on future value? Is it based on their percentage ownership? Does everybody own the same amount of the home? And so all of these things need to be talked through. The other thing that you could potentially talk through amongst yourselves, and even write up your own contract on would be household responsibilities. Who’s going to be responsible for, you know, maintenance of the appliances? What happens if a fridge breaks, who’s paying for the new fridge? What happens if there’s, you know, some sort of issue with the stove or if there’s a fire and emergency. Whose insurance is paying for it, who’s paying the deductible? All these different things need to come into play, and even household responsibilities, you know, simple things, as simple as taking out the garbage. There are lots of people that rent and get into disagreements for far less. So you need to really make sure that you’re fully aware of the person who you’re moving in with and you fully understand each other’s responsibilities.

ROMA: How much would it cost for a legal agreement like this? What kind of fees are we looking at?

LEAH: So in terms of a purchase of a home, you’re usually looking somewhere around $1,000 to $2,000, depending on the lawyer and depending on the agreement and also if they include title searches and things like that. if you’re working with a lawyer on a purchase, they’re likely to give you added services at a discounted rate in terms of working out a contractual agreement between the parties, or you know, a cohabitation agreement or something along those lines. And they’re likely to throw that in for a discounted rate. I would say, it really depends on the amount of time that the lawyer spends working with you on this and the amount of hours that you take to go through this.

ROMA: I mean, it strikes me that an agreement like this is to prevent problems down the road. But in some ways, it can be a very good thing, because it can contribute to the ultimate success of an arrangement like this working.

LEAH: 100%. I think as long as you set strong parameters around a circumstance like this, or you set the parameters along with this purchase, you could absolutely be very successful. If everybody knows that they plan on staying in this circumstance long term and they’ve worked out what is going to happen in the if-then scenario that something changes, and you have an already written down discussion about what is going to happen. It’s clear what’s going to happen, no friendships are going to be harmed, no relationships are going to be broken. Everybody follows the rules as they’re written, and you move forward with life. And what might even happen for some people is in discussing and working out these arrangements, you may realize that you just don’t jive with the people that you were thinking to buy with, or that it’s just not going to work. And it’s better to learn that right now, when you’re only paying legal fees for somebody to build an agreement for you or you’re just discussing this amongst friends and actually detailing out what would happen if then, compared to after you’ve made a purchase of a million dollars or more and now you’re all on a mortgage together and you’re all responsible for this home.

ROMA: Leah, let’s pivot to talking about mortgages. As a couple it’s a pretty straightforward process. More so as a single person. How much harder is it to get a mortgage if your two or three friends or a group of siblings?

LEAH: So certainly, the more people on a mortgage, the more a lender needs to understand the situation. So if you’re coming to the table, and you’ve got a reasonable story. Hey, you know, we just moved to Canada from the United States, we previously came from India, we’re both you know, my brother and I are both software developers, we’ve got great jobs to start, we were working in the States, we saved up a lot of money. Now we live in Canada, and we can’t really afford to buy our own homes. But we’d like to buy a home together. My wife and I are gonna live on the second floor. My brother’s gonna live on the main floor. And we may try and rent out the basement. That is a very reasonable story. Any lender can get behind that story. That makes perfect sense to any lender. Ok ya, they’re new to Canada, they’re going to have trouble qualifying for a mortgage individually. Makes perfect sense. If you’ve got four random people moving in together, oh, we met on Craigslist or Kijiji or something like that. And we want to get together and buy a home. That is a little bit more difficult for a lender to get behind. There’s no real strong story. And this is where a broker can really be helpful in guiding the narrative and helping the lender understand why these people are buying together and why it makes sense. If you come to the table with a cohabitation agreement, and you’re saying, Hey, we’ve already talked through all the options, we already know what we’re going to do in the event of a life change, or a work change or anything along those lines, the lender is going to view you much more favorably they’re going to say these people have really thought this through, they’re going to be able to fulfill their debt obligation to us. And they’re going to be much more inclined to view your file in a favorable light.

ROMA: Can you get a mortgage from any lender if you go this route? Or do you need a specific type of lender?

LEAH: That’s a really good question Roma. Let me walk you through a couple things. So when you are bringing multiple people to the table, not all lenders can work with every type of buyer. What that means is if you’re self-employed, if you are on a contract, if you’re an hourly employee, if you’re salaried, all of these different scenarios are a different ice cream flavor. And you need to find a lender who can satisfy everybody’s flavor in order to buy ice cream at that shop. And so the best way to look at it is certainly many lenders will consider a situation with multiple buyers, but you need to find the right lender to suit your needs. And every single person’s needs are a little bit different. And especially when you’re adding multiple people into the equation with different needs, you might have a bit of a harder time finding a lender who can service those needs.

ROMA: OK so that leads to the next question. If you’re in an unconventional group, does that impact the mortgage rate you can get?

LEAH: It may, because every lender offers different rates and offers different products. So just because a lender is offering a rate that’s more expensive doesn’t necessarily mean it’s a bad product. What it might mean is that it’s a niche product that services a certain type of person. So it really depends on your particular file and your particular situation.

ROMA: Is there any kind of a mortgage that makes more sense in your mind, for this type of buyer or group of buyers?

LEAH: Well, I would probably lean on a variable rate mortgage for this type of buyer. And the reason for that is, there’s two predominant types of mortgages that a lot of people talk about, they talk about fixed rates, and they talk about variable rates with a variable rate. Generally, the penalties are lower. So the penalty on a variable rate mortgage is typically three months interest. Whereas the penalty on a fixed rate mortgage can be anywhere between 1 and 8% of the principal balance of that mortgage, depending on when you break that mortgage and who your lender is and what their penalty terms are. So in a situation where you’ve got multiple buyers, I hate to be a pessimist. But there’s a strong possibility that you will not make it to year five of your term. And so if you will not be making it to year five of your mortgage term, you’re going to be breaking your mortgage. Whether someone leaves or you need to adjust. And because of that, I wouldn’t want to pay that higher penalty. So I would strongly suggest a variable mortgage if you’re buying with other people, and life circumstances might change.

ROMA: The buyers that you’ve run into that are doing this, what kinds of things are they telling you about how the rising house prices have stopped them from pursuing what would have been a more traditional homeownership route.

LEAH: So many people who would be pursuing this strategy are people who feel they’re going to miss the market if they wait. There are people who have seen prices rising over the last two or three years and they may have been saving for a down payment for a small period of time. And the market keeps outpacing their downpayment.

ROMA: Leah, If you’re considering buying with friends, what are some of the things to keep in mind?

LEAH: So one of the things that a lot of people start discussing amongst themselves, or amongst them and their friends is, oh, well, you know, I can’t afford a house. Let’s buy a house together. Let’s get in on this together. You know, if there’s more of us, we can qualify. Sometimes what I would urge people to think about is if you’re not going to qualify for a home independently, because maybe your career is still very much in its infancy, or you’ve worked a lot of gig jobs that haven’t really landed in anything permanent, this may not be the right time for you to qualify, let alone by yourself or with friends. You might want to start thinking about, ‘Okay, well, what is my four year plan? What is my two year plan? How do I get where I want to go? Am I just trying to do this right now because I feel like there’s no other way into the market? Or is this actually something that is reasonable for me long term?’ Renting is not all that terrible for a little while, you know, stick it out, figure out a plan and figure out where you go next. Because with a solid plan and a solid foundation, you can be absolutely successful, and you can get your dream home, and you can get on that path to homeownership, if that’s where you want to be. Whereas with a rushed decision, banding together with other people who you don’t know that well, who you haven’t actually worked through things with may be a more detrimental decision in the end if things fall apart.

ROMA: And you need full financial transparency.

LEAH:Yes, 100%. You can’t really buy something with somebody without financial transparency.

ROB: Teaming up to buy a home isn’t new, but it’s increasingly tempting in major centres where real estate prices feel out of reach. Whether you’re a traditional or unconventional buyer, it’s a massive investment that you need to think through. Roma, what are your takeaways from our conversations today?

ROMA:

  • Approach buying a home with friends and or family with caution. Remember, the likelihood of potential disagreements down the road is high.
  • If you decide to do this, protect your finances - and your relationships - with a legal agreement that has a fair set of rules and a clear exit strategy.
  • People have been successfully co-buying and cohabitating for generations. So there’s no reason this can’t work.

ROB: Thank you for listening to Stress Test. This show was produced by Kyle Fulton, Emily Jackson and Zahra Khozema. Our executive producer is Kiran Rana. Thank you to Suchi, Anu and Leah for joining us this week.

ROMA: You can find Stress Test wherever you listen to podcasts.

Next up on Stress Test - retirement. The old formula of get a job, work for 40 years, retire at 65… it just isn’t going to work for many Millennials and Gen Zs. We know retirement is going to look different, so we’ll explore the evolving mindset around that far off phase of life.

ROB: Until then, find us at the Globe and Mail dot com. Thanks for listening.