Can you really own this one-bedroom Toronto condo for less than $20K?

#GTAHomeHunt is a weekly series from the Star that gets into the details of real estate listings in Toronto and the Greater Toronto Area. Have a tip? Email us at social@torstar.ca

Listed Price: $19,650

Neighbourhood: Niagara

X-factor: The one-bedroom condo at 15 Stafford Street is open and airy, with a large window in the living room and balconies that are accessible through the bedroom or the living room. It’s located just south of King Street West, with transit, groceries, restaurants, parks and cafes nearby.

This condo is available for fractional ownership, the listing says, adding that the buyer doesn’t need to qualify for a mortgage in order to build equity.

We speak with our expert, realtor Othneil Litchmore, to gain insight on the property and this new style of real estate.

Why is it priced this way?

According to the listing, unit 513 is actually valued at $786,000. The company behind the property, Key, says it is selling 2.5 per cent of the condo, which brings the price to $19,650. Despite this small share, the buyer is meant to be an “owner-resident” who lives in the home, according to Key’s website.

There is a “monthly payment” of $2,578.13, the listing adds. That figure includes maintenance fees (which appear on the listing as $446) and property taxes ($2,508 yearly, working out to $209 monthly). According to Key’s website, $50 is allocated towards growing equity. The rest “covers rent for what you don’t own yet,” which would be 97.5 per cent of the unit. These payments are in addition to the down payment.

Advertised as a “co-ownership solution,” Key says its model starts at 2.5 per cent ownership — and helps people build equity much sooner than if they had to save for a standard down payment (which could range from five to 20 per cent of the home price). Litchmore says this is one of many shared equity models that are emerging in response to a housing market that’s out of reach for most people.

Different shared equity models that aim to make it easier to enter the market, for example, are used by the non-profit Options for Homes and the federal government’s First-Time Home Buyer Incentive, he says. This listing notes this is not a rent-to-own arrangement.

However, according to Litchmore, taking into account the current state of the market, the market value of the condo and rent prices, “it’s not a good deal.”

Plus, the buyer of this property is really more of an investor than a co-owner, Litchmore says, since their name is not on the title, and they won’t have the legal rights of an owner “in a court of law.”

Rob Richards, CEO and co-founder of Key, tells the Star in an e-mail that the benefits include making the suite their own with customizations and renovations, and said that since the buyer is not on the title, they don’t have to pay the fees associated with buying and selling real estate. They can also move with short notice after the first year.

“The devil is in the details,” Richards says. “What they’re doing is asking you to be sort of … a live-in investor, where you get to live in the property, you have some equity in the property … and then once you leave, they will give you your equity back, plus they’ll do some calculations on what the appreciation is and give you a portion of the appreciation, as well.”

After three years, buyers can choose to take on the mortgage, if they’d like, or continue building equity over time, Richards says. It would require the standard process of applying for a mortgage, he adds.

But when it comes to value, Litchmore points out that the last similar-sized unit to sell in the building went for $755,000 in April. Therefore, he doesn’t believe the $786,000 price tag for unit 513 — and thus, the price tag on 2.5 per cent ownership — is “fair” market value. Plus, he notes that unlike with home owning, where the owner borrows from the bank but keeps all the profits after selling, in this scenario, the buyer with the 2.5 per cent stake would only receive a portion of profits. However, they would have to pay all the property taxes and maintenance fees, he adds.

Richards says that to determine the value of the condo, “Key uses a third-party automated valuation model for residential properties that has been validated and stress-tested for precision by an appraiser for reliability and consistency of valuation results.”

To compare the $2,578.13 monthly payments to rent prices, Litchmore says that last year, one-bedroom units in the building leased for $2,000 to $2,100 monthly. Nothing in the building has been rented out this year, he says. Considering that maintenance costs and property taxes aren’t the responsibility of renters, but are usually factored into the rent prices, the monthly costs for 15 Stafford Street are relatively high, especially because only $50 goes toward building equity, Litchmore says. And owners and renters alike enjoy the benefits of amenities that fees are meant to maintain.

Additionally, Litchmore notes it’s possible that the owner-resident is not protected under the Residential Tenancies Act. According to Richards, owner-residents and property owners sign a contractual agreement that protects the relationship.

Key’s website adds that based on the performance of Toronto’s real estate market over the last five years, buyers’ equity is expected to grow by 30 per cent in the following five years. However, they note that there is always a risk that the property’s value depreciates.

“If you’re someone that sat on the sidelines, and watched the housing market between March 2020 and March 2022, you will be like, ‘This is the most ridiculous, bulletproof surefire investment I’ve ever seen,’” Litchmore says, but the housing market “operates in cycles,” and right now, it’s flattening.

Essentially, the buyer here is investing their $19,650 in hopes that the housing market will trend upward, he says, but the “true test” is deciding whether that down payment — and the extra monthly costs compared to rent — wouldn’t perform better if invested elsewhere, such as the stock market.

All in all, without a name on the title, Litchmore recommends that anyone who is interested get a lawyer to review the details.

“Make sure you know what you’re getting into,” he says. “You’ve got to be clear on what it is and what it isn’t.”

Any other tips for those looking at places like this?

Litchmore recommends that anyone looking for alternative ways to get into the housing market consider more established shared equity models, such as Options for Homes or the First-Time Home Buyer Incentive. Alternatively, he would recommend buying a home between three to five friends.

Correction — May 30, 2022 — This story has been updated.

Manuela Vega is a Toronto-based digital producer for the Star. Follow her on Twitter: @_manuelavega