Common questions around co-ownership programs explained
TORONTO, April 25, 2023 /CNW/ – Ourboro, a Toronto-based company dedicated to providing access to homeownership through co-ownership, is launching its latest $50 million fund to help buyers break into the housing market by topping up their down payment in exchange for a share in the future value of their home. The program allows buyers to break into an expensive market by sharing in the equity gain or loss with a silent investment partner.
There has been a lot of confusion around how co-ownership programs work, so here is an example. Say a buyer purchases a $1M home with Ourboro, with the buyer contributing $80K (40%) and Ourboro contributing $120K (60%) of the down payment. This allows Ourboro and the co-buyer to put $200,000K in equity toward the down payment (20%). Five years later, the home is sold for $1.5M. Over the five year period, the buyer has paid down $100K on their mortgage principal.
Once the home is sold and the mortgage is discharged, the homebuyer is returned the $100K in mortgage payments from the sale proceeds, less their closing costs. From there, the co-owner and Ourboro will then divide the remaining sale proceeds according to their original down payment contributions. Since the co-owner contributed 40% of the total down payment, they will receive 40% of the remaining equity. The buyer now has turned their $80K down payment and $100K in mortgage payments into $380K. Ourboro’s original contribution of $120K has grown to $420K. You can see a detailed breakout of this scenario here.
Many homebuyers are eager to break into homeownership, and have the income needed to get a mortgage for the home they want, but simply don’t have the down payment saved. That’s why new options, like co-ownership, are gaining popularity.
Co-ownership programs make it possible for homeowners to get into the market faster, as saving up the down payment is often the most significant barrier to entry. Looking at the average household income across all Ourboro co-owners and assuming a savings of 10% each year was put towards a down payment, it would have taken co-owners nine more years to save up for a down payment without Ourboro. That’s nine years of rent payments that could have been going toward paying down their mortgage.
“Some folks say it’s a lot of equity to give up, and of course, my buyers would rather purchase a home on their own, but in many cases, they can’t,” says Trevor Bond, Toronto Real Estate Agent. “Renting has become so expensive and competitive, many of my buyers are looking for a way out of that cycle. With co-ownership, they may not make as much on the resale end as they would have if they bought independently, but that just isn’t an option for them. Also with the co-ownership model, they gain sizable equity that will well-position them to make their next home purchase on their own. Ourboro has become a critical stepping stone for my buyers. They don’t have to sacrifice space to be homeowners.”
While the model is on the rise in Canada, co-ownership providers have existed in the United States for over 20 years, including companies like Unison, Landed, and Hometap, which have funded over $7 billion in co-ownership financing since 2008.
“There is a lot of interest within the lender community for Ourboro but it takes time for lenders to integrate new co-ownership partners,” says Gary Fooks, CEO of 8Twelve Mortgages. “These programs aren’t new for Canadian lenders – traditional lenders have been providing mortgages for co-ownership buyers for quite some time as a niche product, typically delivered by non-profits and government programs. As a private company, Ourboro is doing a great job of popularizing the model and making it more accessible to a wider audience.”
“The primary misconception we face is that people look at us like a lender. We’re not a lender. We’re an investor,” says Kjorven. “Like any equity investor, when the value of the investment goes up, all parties win. If the value of the home goes down, we accept that we may lose our investment. Our buyers find we take the partnership seriously, offering programs and incentives to support homeowners in preserving and increasing the value of their property.”
For more information about Ourboro, to sign-up for an info session, or to start the application process, please visit https://ourboro.com/how-it-works/.
Ourboro is a private, Toronto-based company dedicated to providing access to homeownership through co-ownership. Ourboro co-invests up to $250K towards a buyer’s down payment, purchasing a share in the future value of the home. Once they are in their home, additional programs, such as maintenance check-ups and renovation credits, are available to co-owners to help preserve and increase the home’s value. Currently, Ourboro’s co-ownership program is available in the GTA, Hamilton, Guelph, Kitchener-Waterloo, London and Simcoe County. For more information, please visit Ourboro.com.