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Rent fatigue? 4 alternative ownership models
With homeownership becoming further and further out of reach for many around the world, we’ve begun seeing alternative homeownership models pop up to increase the accessibility of homeownership and help people get into the real estate market. After all, we know how important it can be to build home equity.
In Canada, where the housing market continues to reach record highs, it takes the average Canadian urban homebuyer 24 years to save for a downpayment. Innovative homeownership models can increase accessibility by creating long-term affordable homeownership options to help reduce disparities in intergenerational wealth.
Co-ops are basically legal associations that are incorporated as a co-operative. They provide at-cost housing for their members and are member-controlled (through voting) where residents own a share of ownership of the building where they live, when they are ready to sell they receive a limited return.
In Canada, most of our housing co-ops are dated rental co-ops built during the 1970s and 1980s. But we are entering a new era where new types of co-ops will be created, including equity.
These programs allow participants to choose a home that a local housing finance agency or a nonprofit buys on their behalf; the agency is the initial owner and property manager for the lease period. At a later date, once they’ve shown they can make timely lease payments, the participant can purchase the home from the agency by assuming the unpaid balance of the mortgage.
Co-ownership or co-equity models
Co-ownership or co-equity models are a relatively new solution where you co-own your home alongside another person or entity. Key is a co-ownership solution. In our model, you own a percentage of your suite, and the more that you own, the less your monthly payment will be. Your home equity investment moves with the market and when you’re ready to move out, you just need to give 75 days’ notice and you’ll get your initial investment and appreciation back.
The most interesting element of co-equity is that unlike traditional homeownership there is no mortgage and no significant downpayment, the initial investment is only 2.5% of the value of your suite. You can learn more about when co-owning real estate makes sense and how our co-equity model works.
Perhaps one of the better-known solutions, shared equity mortgages offer a down payment loan that is payment-free until you sell your home. It acts as a second mortgage on title, and typically the down payment loan is between 10-15% of the purchase price. Having a larger down payment helps you qualify for a traditional mortgage while lowering the monthly carrying costs.
When you’re ready to sell, the initial loan is paid back with appreciation that correlates with the down payment loan received (10-15%).
With more renters than ever trying to break into the real estate market, it’s imperative that we continue to build innovative housing solutions to meet the modern challenges faced by renters so they aren’t stuck on the rental treadmill forever.
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