Alternative Home Buying Options – A Growing Trend

Exploring Alternative Home Buying Options in the Canadian Housing Market

In today’s economic climate, many young Canadians are seeking alternative paths to fulfill their dream of owning a home. Whether it’s skyrocketing housing prices, challenging mortgage requirements, or simply the desire for flexibility, a growing number of home buyers, especially first time home buyers are looking beyond traditional ownership structures.

In this blog post let’s look at the trends and considerations that are shaping up alternative home ownership in Canada.

2023 First-time Homebuyer Trends – A Study by Sagen & Environics

Alternative Home Buying Options

A total of 2,223 interviews completed with Canadians aged aged 25-45 who had either purchased their first home within the prior two years or plan to in the next two years. Online interviewing was completed between February 22 and March 27, 2023. Results are weighted to reflect home ownership and mortgage ownership patterns as reported in Census 2021. Study completed by Environics Research on behalf of Sagen and in association with the Canadian Association of Credit Counselling Services.

2023 Sagen Study Overview

25% of First Time Home Buyers received, and 17% of First Time Home Intenders will receive financial assistance with monthly mortgage payments.

Net Takeaways from the Study

  • Tight supply, high prices and economic uncertainty have curtailed recent first-time buying activity to lowest levels to date, and are keeping intenders on the sidelines longer. 4 But work from home needs are being maintained, with a focus on space to work from home and energy.
  • The profile of the first-time buyer continues to evolve, with younger, less affluent buyers being left out, leaving an older, more affluent buyer/intender with changing expectations.
  • Post-COVID proximity to work vs. affordability needs are starting to shift, with slightly greater preference for homes located closer to work and proximity to transit.
  • But work from home needs are being maintained, with a focus on space to work from home and energy efficiency.
  • Home prices grow, down payments surge faster among buyers, as only the highest qualified buyers can buy.
  • Affordability supports needed as six-in-ten receive financial assistance from relatives. Six-in-ten say 30-year amortizations with high ratio mortgages would have been preferred.
  • Financial Fitness declines for First-Time Buyers, gripped by concern for what might happen, not an actual decline in ability to meet obligations.
  • Recent Buyers feel stretched but are confident long-term.

Canadians’ Desire for Home Ownership

A Leger survey commissioned by RE/MAX Canada revealed that one-third of Canadians are exploring alternative paths to homeownership. From co-ownership with family to rent-to-own programs, buyers are increasingly open to non-traditional models.

Despite the challenges, 73% of Canadians still view homeownership as a top investment, highlighting the enduring appeal of owning property.

Navigating the complexities of non-traditional home ownership requires careful consideration and expert guidance. As the housing market continues to evolve, embracing innovative solutions may be the key to realizing your homeownership dreams.

Advice for Home Buyers

For those venturing into non-traditional home ownership, thorough research is essential. Start by researching real estate professionals, lenders, and legal experts experienced in these arrangements. Understanding the tax implications of various ownership models is crucial; consulting with a tax professional can provide clarity on potential benefits and obligations. Due diligence is important when structuring agreements like rent-to-own or co-ownership/ joint ownership contracts to avoid pitfalls that could jeopardize your investment.

What is Rent to Own?

Typically, in a rent to own option, a landlord (seller) extends the offer to buy the property after a period of time (usually one to three years) at a predetermined price; the tenant (buyer) has to pay an upfront option deposit (fee). That fee is generally non-refundable or can sometimes be made partially refundable. A small portion of the monthly rent is applied toward the down payment to purchase the home. Typically, monthly rent can be higher than the market rent in a “Rent to Own program”. Learn more about Rent to Buy.

What is Co-ownership?

Co-ownership housing is a shared living arrangement where two or more people own and live in a home together. Co-owners may share living spaces like kitchens and living rooms, or the home may be divided into separate units. Responsibilities for care and upkeep of the home are usually shared, as well as some amenities and services. There are different ways to co-own a home. A groups of individuals can co-own the house outright or co-owners can use a corporation model. Read more details on Co-ownership.

Co ownership Guide

Co-Ownership Guide

Regional Insights: Mississauga & Brampton

In Mississauga and Brampton, nearly 35% of homebuyers are embracing non-traditional ownership models, reflecting the growing trend towards innovative solutions in the housing market. Secondary income suites, such as basement apartments or in-law suites, have become sought-after options in these regions. This surge in popularity can be attributed to various factors, including the rising cost of living and the need for additional income streams.

Financial Benefits
Homeowners in Mississauga and Brampton are capitalizing on the financial benefits of converting underutilized basement spaces into rentable units. This additional income helps offset mortgage payments, property taxes, and maintenance costs, contributing to overall affordability and financial stability.

Affordability for Renters
Given the housing affordability challenges faced by many residents in the Greater Toronto Area (GTA), secondary income suites provide a more budget-friendly housing option for renters in Mississauga and Brampton. This contributes to the cities’ efforts to address their respective housing crises and supports diverse socioeconomic backgrounds within these communities.

Changing Demographics
The demographic landscape of both Mississauga and Brampton is evolving, with an increasing number of multigenerational families and immigrant households. Secondary income suites offer flexible living arrangements that cater to the needs of these diverse demographic groups, accommodating extended family members or providing rental opportunities for individuals seeking affordable housing options.

Increasing Property Values
Homeowners in Mississauga and Brampton are also capitalizing on the potential increase in property values that secondary income suites can bring. The flexibility of having an additional rental unit appeals to prospective buyers and investors, contributing to the overall appreciation of property values in these regions.

Regional Insights: Hamilton & West GTA

In the regions of Hamilton, Burlington, and Oakville, there has been a noticeable increase in homebuyers exploring creative forms of homeownership to overcome affordability challenges. Notably, there has been a 300% increase in multi-generational buyers in this area, reflecting the growing trend towards alternative ownership models.

Financial Benefits
Homeowners in Hamilton and the surrounding areas are leveraging alternative ownership models to maximize property value and generate additional income streams. Options such as reverse mortgages and co-buying with family offer financial flexibility and support long-term financial goals.

Changing Demographics
Hamilton, Burlington, and Oakville are experiencing shifts in demographics, with an increasing number of multi-generational families seeking housing solutions that accommodate diverse living arrangements. Alternative ownership models provide flexibility and adaptability to meet the evolving needs of these communities.

Regional Insights: Toronto & East GTA

Toronto and the East GTA regions have witnessed a significant increase in non-traditional forms of homeownership over the past year. With ongoing affordability challenges, an estimated eight to ten percent increase in homebuyers exploring alternative ownership solutions is expected in the coming year.

Increasing Demand
The demand for alternative ownership models, such as tenants in common and income/secondary suites, is driven by the need for affordable housing options in Toronto and the East GTA. These models offer flexibility and financial benefits that appeal to a diverse range of homebuyers.

Barriers to Entry
While secondary suites offer income benefits, they come with barriers to entry, including timing and construction costs. Homebuyers must carefully consider these factors and work with experienced real estate professionals to navigate the complexities of alternative ownership models.

Seller Perceptions
Home sellers in Toronto and the East GTA are generally receptive to offers from non-traditional homebuyers, reflecting a growing acceptance of alternative ownership solutions in the real estate market. However, buyers should be prepared to address potential concerns and negotiate terms that meet the needs of all parties involved.

Home-Buying Advice
Homebuyers in Toronto and the East GTA should prioritize research and due diligence when exploring alternative ownership models. Working with knowledgeable real estate professionals and seeking guidance on tax implications and financing options can help ensure a smooth and successful homebuying experience.

General Support and Hurdles across the GTA

Supportive Government Policies
Municipal governments are recognizing the importance of alternative ownership models in addressing housing affordability and accessibility. By implementing supportive policies and streamlining approval processes, authorities are creating an environment conducive to innovative homeownership solutions.

Challenges and Solutions 
Despite the benefits of alternative ownership models, challenges such as zoning regulations, financing concerns, and potential conflicts with co-owners persist. Homebuyers and homeowners must work closely with real estate professionals to navigate these challenges and ensure successful outcomes.

Content Credit: RE/MAX Canada

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