Buying a home: the different types of homeownership

Buying a home is one of the biggest decisions most of us will ever make. But when it comes to purchasing a residential property in B.C., there are several different homeownership models to choose from – each of which has its own distinct set of advantages and compromises.

Freehold homes: traditional homeownership

Freehold homes are the most common form of property ownership in British Columbia. They’re also what most Canadians automatically think of when they talk about buying a home.

When you purchase a freehold property, you own both the home you’re buying as well as the land it sits on. This lets you control, manage and make any changes you want to your home, so long as you follow local bylaws and other regulations in your city or municipality.

Because you’re buying both the property and the land, however, freehold homes are often more expensive than other forms of residential homeownership. Freehold owners are also responsible for taking care of – and paying for – all of the maintenance, repairs, property taxes and other expenses on their own.

Leasehold properties: buying the right to occupy your home

Leasehold properties are homes that are located on rented (or “leased”) land. With a leasehold property, rather than purchasing your home outright, you’re buying the legal right to occupy the property for a specific period of time – usually between 20 to 99 years.

Leasehold properties can either be pre-paid, where you (or a former owner) pay the entirety of the lease upfront, or you can pay a set amount towards the lease on a monthly or annual basis.

Since you don’t own the land, leasehold properties often cost a lot less than a similar freehold or strata property. This can make them an attractive option for buyers who want to purchase a larger home or one that’s in a higher-demand location than their budget would otherwise allow, such as a property that’s right on the seawall or which has sweeping ocean or mountain views.

But the renewal costs, deadlines and other terms associated with owning a leasehold property also pose a significant amount of financial risk and uncertainty that can negatively impact your resale value – especially if you’re getting close to the end of the lease term.

Strata properties: shared ownership

Strata units (also commonly called condominiums or simply “condos”) are a unique form of homeownership where the buyer fully owns their own unit, but shares ownership of – and the costs associated with – all the common areas, features and amenities with the other unit owners.

Because the strata is responsible for most of the upkeep, strata properties usually need a lot less time, effort and maintenance than other forms of homeownership. This can make them a good fit for people who are particularly busy, who travel a lot for work or pleasure, or who simply prefer a “lock it and go” lifestyle.

But owners of strata units also have to abide by both the bylaws set out by their strata corporation as well as all of the rules and regulations outlined in the B.C. Strata Property Act, which can put limits on what they can or can’t do with their property.

Plus, strata owners also have to pay condo fees to cover all that maintenance and upkeep, which can run into hundreds of dollars or more a month.

Co-ops: an affordable alternative

Co-operative housing (aka a “co-op”) is a model of homeownership where, rather than owning an individual property, buyers purchase a share in a co-operative corporation, which gives them the right to occupy “their” unit for as long as they live there.

In addition to sharing ownership of the co-op corporation, co-op members usually take it upon themselves to take care of many of the chores and other tasks associated with building management, maintenance and upkeep. This can help build a strong sense of community between the co-owners while also keeping the overall monthly costs low for everyone.

But it also means each member of the co-op has to spend a certain amount of time each month to attend to whichever of those chores they’ve agreed to take on. Getting a mortgage to buy a co-op unit can also be challenging, as traditional mortgage lenders may be reluctant to finance these types of purchases.

Co-ownership: buying a home with family and friends

Last but not least, co-ownership housing models refer to scenarios where two or more people buy a property together.

Two relatively common forms of co-ownership include a “joint tenancy,” where spouses purchase a property with an agreement that the surviving spouse will inherit the whole property if one of them passes away; and “tenancy in common,” where a group of buyers (often either investors or several family members or friends) purchase a property together, with each co-owner receiving a certain number of “shares” they can sell when they move.

Because they let buyers pool their resources, co-ownership is becoming especially popular in areas like the Lower Mainland, where the average price of a home is out of reach for many first-time buyers.

But while co-ownership can reduce both the size of your down payment and your monthly mortgage bills, the legal and financial ramifications can be very complex, especially if the relationships between the co-owners change or evolve over time. So before you enter into a co-ownership arrangement, be sure to do your research, seek out qualified legal help if needed, and talk to your REALTOR® for advice.

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