If you’ve been searching for a starter condo, you may have come across a number of units with the type categorized as 'Co-ownership'. These units are typically larger then a shiny and new condo unit, yet sell for much less. So what’s the catch, you ask?
A co-ownership is very much like a condominium, but there are a few noteworthy differences.
In a condominium, buyers own the interior of their unit and receive a deed as proof of ownership, which they can register a mortgage against from a conventional lender. The buyers also share an interest in common elements (the area outside of the interior of the unit) that they share with other Condominium Corporation members.
With a co-ownership apartment, purchasers own a percentage interest in the building, often calculated as building 'shares'. Owners effectively receive a deed to the entire building - including the common areas - with their 'shares' granting exclusive right to occupy an individual apartment. The title of the building is fractured, which allows residents to register their individual mortgage on the complex. Only a select number of lenders have lending programs for this type of complex.
In a condo, maintenance fees do not include property tax. Whereas in a co-ownership, owners pay their proportionate share of property taxes as part of their monthly maintenance fees. While this often makes the co-ownership monthly maintenance fees appear to be higher than condominiums, once you extrapolate the proportionate sum for the unit common fees and its property taxes, the total costs are often on par with each other.
Financing for a co-ownership versus a condominium is quite different and worth noting. In a condominium you actually get 'title' to your individual suite of which a traditional mortgage can be registered against. In the event the owner defaults on their payments, it's easy for a lender to re-possess a unit and sell it under 'power of sale'. However, because a co-ownership consists of 'shares' in the ownership of the building, it's more like owning 'shares' in a corporation which are less liquid than owning 'title' to an individual unit. This makes it more challenging for a lending institution to extract their capital in the event an owner defaults. As a result, traditional lenders consider this a higher risk to them. This has nothing to do with the soundness of a co-ownership as a real estate purchase, but it does mean fewer lenders offer financing for this type of property.
While conventional lenders may not finance co-ownerships, there are several reputable trust companies and credit unions who understand the co-ownership concept and are willing to place mortgages on these types of properties at competitive interest rates. However, co-ownerships do not qualify for CMHC high ratio mortgage insurance, which means Buyers are obliged to place larger down payments with their purchase. Most credit unions typically require a 20% or more downpayment.
For Buyers who have sizable down payments, co-ownerships offer a lot of upside for Buyers. First, co-ownerships are frequently less expensive to purchase. Second, many co-ownerships are situated in older well-constructed buildings with spacious floor plans in prestigious neighborhoods. Many highly coveted neighborhoods - like Forest Hill for example - have a limited number of new condo developments to choose from, where prices are significantly more expensive. Co-ownership is an affordable way to live in a coveted neighborhood with the added benefit of low-maintenance living. Furthermore, the turnover in these buildings is often lower and there is a higher percentage of owner occupied units. With that comes an increased pride of ownership and stronger community-centric living environment.
Co-ownerships are under appreciated and frequently overlooked simply due to the lack of knowledge about this type of property. They are fantastic for those looking to downsize. Since the units are usually bigger than today’s new condos, it's easier to transition from a house into a co-ownership. Also, co-ownerships are often more intimate mid-rise buildings, so if you prefer a “boutique” vibe with more character and charm, opposed to high-in-the-sky living, this is an excellent option worth considering.
Co-ownerships are not in abundance in the City of Toronto, there is a concentration of them in Midtown.
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