Toronto businessman Jordan Taylor was renting a nice two-bedroom condo for $ 3,000 a month while trying to figure out how to gather enough savings to buy on the real estate market.
Then Taylor, 30, saw an ad on Instagram for Key, the Toronto “real estate tech” company, whose goal is to help people gain a foothold on the local real estate ladder “decades faster” just by having to pay. an initial payment of 2.5%. Instead of saving the typical 20 percent that delays capital creation.
The company operates what it calls an “innovative co-ownership model” in which people can become co-owners of a condominium and live there, thus gaining the opportunity to generate capital over time.
Key is the latest in a trend toward fractional ownership, a way that people whose purchasing power has declined due to the city’s high real estate prices can enter the market.
But unlike other companies like Addy Invest, BuyProperly, and RealtyShares, where investors buy shares in buildings and make a profit on rental income, Key requires that people live in the units and become what the company calls “homeowners.” -residents “. essentially buying a stake in a condominium owned by another investor.
However, as with any real estate, there are still inherent risks if the market does not perform well, one expert notes.
Taylor toured his condo this spring and decided on April 12 that he wanted to become an owner-resident. He officially moved into his two-bedroom apartment in the West Queen West area on June 1.
“I was years away from being able to move to any type of property and Key helped me hack that entire timeline,” he says.
Owner-residents pay monthly costs, rates that are slightly less than market rent. The more you invest, the lower your monthly fees.
Those monthly amounts go toward expenses like utilities, building maintenance, property taxes, and financing costs. The owner-resident also pays a pro rata amount for repairs and maintenance.
The “owner-resident” also pays $ 50 a month for his equity in the condo. They can increase their monthly payments and opt after three years to try to take over the mortgage and finally be in title.
For Taylor, all of that means she pays about the same amount she was paying to rent her old condo, including the monthly principal amount.
“I am beyond excited that this has gone so well for me. The timing was perfect. The setup was easy and the stars really aligned, ”says Taylor.
Daniel Dubois, who along with Rob Richards co-founded Key, says the company’s mission “is to create a world where real estate is a source of freedom and prosperity” for all.
“We address the two biggest challenges associated with Canadians owning a home: the first is a large down payment and the second is being able to qualify for and keep a conventional mortgage,” Dubois continues in an interview.
There is no bank involvement in terms of getting a mortgage approved, but residents must prove, among other things, that they are receiving a stable income and that they have the means to make their monthly payments.
Richards says there are now 800,000 condo units in Toronto mostly owned by investors and rented out to people who are “aspiring homeowners,” for whom the dream of ownership is getting farther and farther away due to escalating prices. of the houses. faster than wages.
Key jobs in partnering with owners: People who already own the condos. – to secure the units. Key says he aligns this real estate investment capital with owner-resident equity to “supplement the cost” of home ownership.
Key says he makes money in large part by being the property manager for the suites.
There is an agreement between owner and resident that is outside the Residential Leasing Law. Key allows its residents to give short notice to leave (75 days) and they can take their accumulated capital with them, only having to pay a 1 percent transaction fee to Key on that invested capital.
The asset owner cannot sell the condo in the first three years and must notify the resident owner six months in advance thereafter. The latter would have the first right of refusal: they can request the purchase of the unit at fair market value.
The company plans to soon expand its reach to single-family, semi-family and semi-detached homes.
Richards and Dubois declined in an interview to discuss the details of Key’s finances, but according to a report by an online real estate magazine, Key has raised hundreds of millions from insurance companies, banks and pension funds.
The company recently completed a beta test involving 20 people in 14 condos in downtown Toronto.
Key predicts that based on the performance of the housing market over the past five years, the owner-resident equity capital will appreciate by 30 percent over the next five years. But Key cautions that new owner-residents are taking the risk of depreciation of their real estate.
Matti Siemiatycki, professor of geography and planning and director of the Infrastructure Institute at U of T, says Key’s model “still requires a lot of scrutiny.”
“(Key) has some pretty big players in venture capital and private equity involved in this. Those people will want a return on their investment, too. Is it that your long-term retention is in the appreciation of these units (condos)?
“Is that the lucrative game here? How is the return (on investment) generated, especially if the units are rented below market or at market rates? I’d like to know a little more about how that part works, ”says the teacher.