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Let’s face it, with the continuously rising costs in the Fraser Valley Real Estate market, owning the home of our dreams, or even owning a home at all seems out of reach for a lot of people living here. 63% of renters in BC feel like they will never even own a home at all. For those who are renting, rental demands have never been higher, and even just trying to find a suitable home to rent can seem like an impossible task.
Out of those that do own, the vast majority feel they’ve settled for something under their expectations simply because they can’t afford whatever their ideal owning situation may be. Regardless of your current situation, if you’re feeling defeated by the current and ongoing market conditions, perhaps there may be a solution for you.
Whether you are a first-time home buyer unable to find something suitable in your budget, a family wanting to team up with another family to gain more space, a single person looking to partner up with friends or strangers to get into the market, group buying may be right for you.
When it comes to group buying, I always say it comes down to the 4 P’s. People, Plan, Price, and Property. If any of the 4 P’s aren’t in alignment, the situation likely should be avoided. However, if all 4 quarters of the equation can be met, group buying may be right for you.
Group buying is when a group of people, typically 2-4, partner up to co-purchase a property type together. This is different from an investment group buy, which would usually consist of the investors forming a company together, and the company buying and owning the rights to the purchased property.
The group can consist of family members (the most typical scenario we see), a group of friends, or even complete strangers if it makes sense and seems like a suitable fit to do so. There are 2 main types of ownership types that may be utilized when it comes to forming a group buy: joint tenancy and tenancy in common.
Joint tenancy would be like if a married couple purchased a property. They own the property equally, however, if one or the other dies, the other one assumes 100% ownership automatically.
With Tenancy in common, each tenant owns a portion of the property much like a share, and if they were to pass away, their portion of the property would form part of their estate and be able to be passed on through their estate. Tenancy in common would typically be the preferred choice, especially if those partnering up are not in the same family.
The exact benefit to group buying could fluctuate given the exact people involved in the situation, but essentially, you’re pooling your resources together to combine forces and increase buying power. This usually giving you the option to make a larger purchase, or any purchase at all, than you would be able to solely.
For example, if you had 2 buyers that could both get a mortgage approval of $750,000, you could group buy together at $750,000 each for a total of $1,500,000. Now instead of purchasing 2 townhouses, you’re purchasing 1 single-family home, likely something with multiple suites.
Sometimes you see families that want their grandkids to grow up in a larger space, so they group buy with their kids. Group buying can even be 2 people that are tired of renting but can’t afford a condo on their own. You can look at option to co-purchase a 2-bedroom condo together, and essentially be roommates that own together.
As mentioned above, the most critical part of any group buy comes down to the 4 P’s. People, Plan, Price, and Property.
Given the fact that this would be a substantial purchase, the group of people paired together must make sense. You’re going to be not only partnering up, but also living around the people you complete the purchase with. The last thing you want is to commit to a group buy and end up hating your living arrangements. It’s important that all the people in the mix can work well with each other. Like a family, not everyone needs to agree on everything all the time, but there needs to be a common level of on-going respect for everyone in the picture. As there is with any of your surrounding neighbours, living situations can be unpleasant if not everyone gets along accordingly.
Now although the plan will have a mix of all the other 3 competent, it itself its own segment to the puzzle. A proper and well thought out plan is a critical component when considering a Group Buy. Lenders will want to know this plan prior to approving financing, so it needs to be well thought out, make sense, and be crystal clear. Parts of this plan would include who will be joining together on the purchase, what type of property is best suitable, how will the property be split up, and how will the purchasing contract be drafted. It is detrimental that all possibilities be explored and agreed upon prior to entering any legally binding commitment. Discussions must be had such as what if one person decides they want to sell before the other, may other parties be welcomed to join in after the fact. Discussions around levels of expectations and tolerances must be crystal clear as well, if there is a 2-level house, who gets the upper level etc.
Mixed in with the price component I like to include the financing end of things. One downside to group purchasing, is that everyone going on title must be on the mortgage. This would mean if anyone in the group defaulted on their mortgage, everyone in the agreement would be held responsible. This also means that you couldn’t have anyone entering the agreement that wanted to be mortgage free. Not everyone has to be responsible for the same payment amount, and this would be outlined in the mutually agreed upon contractual agreement drafted by the lawyers. For example, if 2 people purchased a house together, Person A will live upstairs, and person B will live downstairs. The house is 3000 SQFT total, 2000 upstairs, and 1000 downstairs, the agreement could be drafted that person A pays 2/3rds of the mortgage amount to reflect the unit entitlement. Similar whereas person A had the capital to pay their portion without a mortgage. Person A and person B would still both be on the mortgage, but the contractual agreement between the parties would indicate Person A does not pay any portion of the mortgage. The downside here is that if person B where to fault on the mortgage, person A would still be held liable, regardless of the agreement between both parties. Another downside is that everyone’s financial situation and credit history will affect the entire groups finance options, a Mortgage Broker knowledgeable in the area will be able to best sort out these details.
Last but not least…. property! This is as important piece to the puzzle as the rest because of course, without the right property for the right people, at the right price, with the right plan, you have no completed plan. The right property will completely depend on each specific scenario, and what is best for those involved. Typically for any single family dwelling you would want multiple suites within the house to separate accordingly. However, you may have two people wanting to buy a condo together, in that case we would want to ensure there are multiple bedrooms, enough parking for both parties, and enough space that everyone can be happy. Prior to going out hunting for properties, we would go through a list of detailed questions so that I can have a better understanding of what the ideal property type would look like. At this point, upon viewing, we have an open and honest conversation if this is a workable and realistic option. Given the complexity of a group buying situation, I would expect to have a view a few places before finding one that is a suitable fit. At the end of the day, it needs to be as perfect as possible for all groups in the mix! The downside here is that what may seem perfect to one person in the mix may not be best for another, hence why it can take a bit of time looking to really find that perfect spot.
Is group buying for everyone? No, it simply isn’t. But it can be a good solution for those looking to think outside the box and open their real estate options. The Realtor, Mortgage Broker, and Lawyers would all play a critical position in bringing a group buy together. Clauses in the buying agreement between parties can be as detailed as adding in clauses that if someone wants to sell their portion, the remaining party can have the option to either buy the other share (at fair market value) or have a member of their family have first pick to purchase, again at a mutually agreed upon price based on fair market value. The first step is always an initial conversation will all parties involved to establish if the 4 P’s are in align, if not its best not to proceed. For the situations that do align properly, group buying can be a fantastic option to expand your Real Estate potential.
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