Here’s something you may have heard: Home ownership in Toronto is unaffordable for many people. Though Covid-19 may put a damper on prices in the near future, chances are that Toronto real estate will not suddenly become affordable. On top of that, there’s a good chance, when this pandemic is over, we will return to a housing market with traditionally little inventory and big demand all over again. Though there will be moments when the Toronto real estate market will come down in price, when the market takes a temporary shift, over the long term, the Toronto real estate market will very likely continue to be unaffordablein Toronto in the years to come for many people.
Lack of affordability is nothing new to anyone who lives in a large and growing city. Home prices in Toronto have grown faster than wages in the past ten years. Rents have gone up too (before Covid-19). And this makes it tougher for people to save. For some, your options are to leave the city – drive until you qualify – or become a permanent renter.
Now there are going to be people out there who will be able to afford Toronto real estate. And for those, I say go for it. I still think this is the most financially wise way to live in Toronto.
But there is a group out there who work hard at great jobs and save their money, but have also been priced out of the Toronto real estate market. Some of these folks would like to get on the property ladder in the city at some point. Hopefully sooner rather than later. It does take time to save money for the down payment and the costs associated with buying real estate. Often home prices in Toronto go up as you’re saving. So, your money doesn’t go as far by the time you have your deposit ready. This may cause some to leave Toronto, to get something they can afford.
Some people are very happy to leave Toronto for the suburbs, but there are some who have have friends, family and a job in Toronto who would prefer to stay. And there are those who are just built for the big city. The suburbs are just not for them. Those people who want to stay and buy property remain renters for longer than they would like.
So the questions then becomes: How do you get into the Toronto real estate market without having to qualify for a huge mortgage? Well, there seem to be some new models of ownership, or at least partial ownership, that are taking shape in many large and expensive Canadian and American cities. One of these new models of ownership functions like a stepping stone to owning a property or a compromise of sorts between renting and owning. It’s still in the early stages in Toronto, but definitely worth a mention now that there are some new possibilities emerging.
One example of these new models here in Toronto is called Key Living. With a group of investors (i.e. larger businesses like insurance companies), this company buys all or a number of condos from a new developer. Then it offers buyers the option to own a share of the condo unit. So, you can invest as little as $25,000 or as much as you like above that. This payment makes you a part owner of the condo. So, if you put in $25,000 into a condo that is worth $500,000, then you own 5% of the condo. You then pay rent on the remaining 95%. Subsequently, your rent would be 5% lower than market rent. You own equity in the remaining 5%.
If you sell in five years, and that condo that was worth $500,000 becomes $750,000, then your $25,000 investment becomes $37,500. So, you benefit from the gains in the market. If the market doesn’t make any gains, you don’t either. It’s like a real estate stock that allows for reduced rent.
If you plan to own a property of your own one day, it may be a good way to even grow your down payment so you can buy your own property when you’re ready. During this time you are not giving all of your rent away. A fraction of it is generating money in an upward market. As an extra benefit, you cannot be evicted. From a Toronto standpoint, that’s a pretty good thing. You decide when you leave. So, no landlords with renovictions. It’s yours until you decide to leave. It’s a secured tenancy. With this model, you don’t need to qualify for a mortgage. You just need to make sure you cover your rent and the initial $25,000 minimum payment.
Right now Key Living has condo projects at King and Spadina, Queen and Spadina, and Yonge and Wellesley. I’m sure there will be more to come, but this is the early stages.
Originally this concept was targeted at Millennials and those looking to purchase a starter home some day who need to grown their down payment and not have all of their money going to rent. It’s a way of getting on the property ladder. They’re not, however, the only interested parties. It is also an option for down-sizers who are selling their home and renting. It is a secured rental option. They don’t need to have the responsibility of full ownership, but they can stay in their unit for as long as they like.
To be clear, I’m not here as someone who is an investor in this venture. This is not the only model like this in the works, and it’s still in the very early stages. There are some things that need to be ironed out. When you sell, you sell internally, not on the open market. So, there is some question as to who will determine what is market value for your unit. The reserve fund is different from other condos. You don’t have one for the whole building, but for the whole enterprise across all of the condos. Lots of new things here.
So, I have a feeling there will be some learning moments along the way. Still, I think there is something very interesting brewing here for a number of people who live in Toronto. Key Living is not the only one, but it is the one I know the best right now. I have not seen a lot of advertising for this as of yet for Key Living, but you can find more info here. As far as I can tell, it’s been very word of mouth. So, right now you can still get on board. In the future, if all goes well, there may be a waiting list. Again, I have nothing to gain from Key Living. I’m not an investor. And there may be better models than this to emerge in the future. I am happy to see some options taking shape, though, that will help people stay in Toronto who want to stay, but feel they may be stuck renting for too long.