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‘My morning coffee party’: How to co-own a home with friends or family

WATCH: A variety of co-owning options are providing Canadians with new opportunities to find affordable housing, as home prices and rental costs continue to soar in most major cities.

Julie DeWolf is a 33-year old lawyer in Toronto. Her husband, Travis DeWolf, 34, is an artificial intelligence scientist and entrepreneur. Arla Good, 33, a friend the couple met through Ultimate Frisbee, has a PhD. Together they clear more than 35 years of post-secondary education. Yet, they couldn’t afford to buy their own home in one of the country’s priciest real estate markets. So they teamed up.

The three of them bought a $1.1 million three-bedroom semi-detached home in Toronto’s Little Italy in August and are now living as roommates.

The setup is meant to be temporary. Julie and Travis would like to eventually move to Halifax, closer to family. For now, however, they say they’re enjoying their communal living situation.

“It’s nice. We enjoy a cup of coffee together every morning,” said Good.

Money 123: Renting vs. owning
Money 123: Renting vs. owning

Co-ownership takes many forms …

But co-owning doesn’t necessarily mean sharing your living space — or your morning coffee — if that’s not your thing.

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“There are as many definitions of co-ownership as you can possibly have,” said Lesli Gaynor, the real estate agent who helped Julie, Travis and Good find their home.

It’s common for co-owners to renovate in order to carve separate living spaces out of the same house, with one tenant, for example, taking the top floor, and the other living on the ground floor.

READ MORE: There’s a lifestyle penalty for renting in Canada — it doesn’t have to be so

Others, however, enjoy the kind of communal living that results that comes sharing the same kitchen and living room. Co-ownership can be an antidote to sky-high housing prices as much as to loneliness, Gaynor said.

The option is also popular among seniors, whether they are starting anew after divorce, buying with younger family members, or ready to share their own home.

“A lot of us are over-housed,” Gaynor said.

An analysis by the Canadian Centre for Economic Analysis estimated Ontario currently has five million spare bedrooms, mostly owned by homeowners aged 65 and over.

Money 123: Understanding rent-to-own
Money 123: Understanding rent-to-own

… but it is complicated

Gaynor said she receives call “practically every day” from people interested in exploring a co-ownership arrangement.

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“But when you put the pieces together, things [sometimes] start to fall apart,” she added.

When many people are involved, decisions usually take longer, something that can put aspiring co-owners at a disadvantage in a housing market where homebuyers are often competing against investors and developers, Gaynor said.

READ MORE: What $1,500 per month in rent gets you across Canada

Sometimes zoning regulations rule out the addition of a second kitchen in a detached house. Other times, lenders won’t cooperate.

Gaynor recalled the case of five potential buyers who were told that many adults living under a single roof amounted to “a rooming house” which would be ineligible for a residential mortgage.

However, it’s the thought of what would happen if or when the co-ownership arrangement ends that “terrifies people the most,” Gaynor said.

Selling a portion of a house, after all, is more complicated than finding a real estate agent and advertising on the Multiple Listings Service (MLS) system, she noted.

Rent-to-own concerns
Rent-to-own concerns

How to do it right

Once you’ve found the right partners, the first step is to establish the ground rules, Gaynor said.

In order to ensure that the communication channels remain open, she advises holding regular house meetings. The co-owners should also agree on a voting system for making decisions — including what happens if there’s a tie vote or a serious disagreement.

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Once you’ve agreed on a shared vision, you’ll need to find financing.

READ MORE: Most boomers likely won’t downsize for another 20 years — too late for millennials

When purchasing a property, the buyers will have generally have to choose between two types of ownership structure, according to Gaynor.

Joint tenants have equal rights to the property, as well as right of survivorship. This means that if one of the tenants dies, the other tenants will inherit the deceased’s share of the property, regardless of what’s set out in their will.

Money 123: Importance of having a will
Money 123: Importance of having a will

Tenants in common, on the other hand, may own unequal shares of the property, and there is no right to survivorship.

The ownership structure should be recorded in a legal agreement that will also deal with “anything you can think of,” Gaynor said.

That should include how the property will be divided and used, how routine expenses and the cost of maintenance and repairs will be shared, what happens if one of the tenants breaches the terms of the agreement or default, as well as exit strategies, should one or more of the co-owners want to share the property.

Julie, Travis and Good said they took pains to think of every imaginable scenario to include in their own co-ownership agreement. However, they added, some details have yet to be ironed out.

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READ MORE: Reverse mortgage, downsizing or HELOC? The best way to boost your retirement income

When it comes to expenses, for example, the three just recently decided to distinguish between “landlord costs” and “roommate costs.” The first are expenses that contribute to the value of the house, such as repairs or upgrades. Those are split 50-50 between Julie and Travis and Good. Utilities, on the other hand, are roommate costs for which Good pays only one-third.

Gaynor suggests that co-owners set up a common fund for operating expenses to which each party must make regular contributions. Release of the funds should require a signature from all co-owners. And to minimize the chance of default, she advises setting up a slush fund with at least three months worth of mortgage payments.

Money 123: Weighing the costs and benefits of reverse mortgages
Money 123: Weighing the costs and benefits of reverse mortgages

Advantages

But co-ownership also has advantages that go beyond affordability and companionship, according to Romana King, director of content at Zolo Realty.

Unlike apartment dwellers, for example, co-owners get to choose their neighbours. If upstairs noise bothers them, they can install sound insulation.

“You can’t necessarily do that in the condo and definitely can’t do it in a rental,” she said.

Co-owners also often get to buy detached homes, properties that generally appreciate better than condos, King said. Owning part of a house is a better springboard to later buying your own home, she added.

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And dividing a large detached home into smaller units often improves its value, King said.

In fact, she added, with a dearth of housing options that are bigger than the typical condo unit but smaller than the traditional detached home, this may be the way of the future.

I think that the way we should be going in terms of urban densification is realizing that the single-family homes in the downtown cores, at some point we must be able to split [them] into different legal units.”

Julie, Travis and Good, for their part, are planning to revisit the arrangement in five years, when the mortgage comes up for renewal.

For now, though, they’re making the most of what Good calls “my morning coffee party.”