A residential real-estate play for patient capital

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A Toronto-based company armed with several million dollars in private funding is offering investors a residential real-estate play while seeking to make homeownership in Canada more affordable by helping buyers with their down payments.

Ourboro is a co-ownership plan that will contribute up to $250,000 to help buyers reach 20 per cent of a home’s purchase price as a down payment without charging interest.

In return, the company will take a cut of any increase in the value of the property the next time it’s sold. The buyers need to put in at least 5 per cent of the total, and the ownership is split according to what percentage of the down payment they and Ourboro provided.

Residential real estate investors participate in pool of funds

Investors interested in residential real estate in the Toronto and Golden Horseshoe area around the city pay a management fee to participate in the Ourboro pool of funds.

The home buyer and co-owner investors stand to profit in a tight, rising market with prices perpetually going up, as has been the case in the Greater Toronto Area for the past several years.

The risk to investors is that the market will flatten as the effects of successive interest rate hikes by the Bank of Canada over the past two years take hold.

“We’re not seeing really strong price growth in the market now, and we’re probably not going to in the coming years. It looks like returns on investment in real estate will be a lot softer in the next five or 10 years than they were in the last 10 years, when they went through the roof,” says Robert Kavcic, senior economist and director economics at BMO Capital Markets.

Some housing experts have been critical of a private co-ownership model as leaving owners with less profit on the sale of the property than they would have otherwise, and point to non-profit rent-to-own initiatives as more equitable.

But others see this as one private option among many solutions helping those who might not otherwise be able to afford home ownership.

Backed by private investment firm Peerage

Ourboro has partnered with Peerage Realty Partners, an arm of Peerage Capital Group, a private investment firm founded by Miles Nadal, who is also its executive chairman. Nadal invested the first $10 million of operating costs and underwrote the first 100 or so properties purchased using Ourboro.

While one of the aims is for Ourboro’s investors to make money as co-owned properties rise in value and are sold, the company also looks to help ease the housing crunch that plagues the Greater Toronto Area and other communities where homes are in short supply with high demand.

“We come from an impact investment space. We’re working at the intersection of profit and purpose,” says Nick Pope, Ourboro’s co-founder.

The idea for Ourboro is based on market research, he explains.

Home ownership difficult for many

“We noticed a gap in the market where it’s increasingly challenging for those who don’t have access to the bank of Mom and Dad to get into home ownership. For these people, the biggest impediment is coming up with a down payment.”

Individuals and families face a challenge in the market because investors have been snapping up residential properties, a trend that accelerated during the COVID19 pandemic according to the Bank of Canada.

The Bank said that investors were responsible for 30 per cent of home purchases in the first three months of this year, up from 28 per cent in the first quarter of last year and 22 per cent in the same period in 2020.

The bank defines an investor as a buyer who took out a mortgage to buy a property while also maintaining a mortgage on another home.

“The presence of investors in real estate markets can amplify house price cycles. During housing booms, greater demand from investors can add to bidding pressures and intensify price increases,” the bank said in a note that accompanied its data.

“With more competing for the same properties, rather than having home buyers and investors compete, we collaborate,” Pope says.

Alex Kjorven, Ourboro’s chief product officer told Storeys recently that since coming to market in the spring of 2022, the company received 1,500 applications from qualified buyers and has been working with between 100 and 120 buyers at any given time.

Co-ownership model different from CMHC program

Ourboro’s co-ownership program is not the same as a program launched in 2019 by Canada Mortgage and Housing Corp. (CMHC) called the Shared Equity Mortgage Providers Fund, which also helps buyers who seek affordable housing while putting down as little as 5 per cent down on properties.

“Structurally the CMHC program is very different from ours,” Pope said.

“The CMHC program is essentially a second mortgage program, and we’re not. Also, the CMHC program has a variety of income restrictions for those who qualify, which we don’t have. Our co-buyers have a lot more flexibility in terms of how much they want to put down,” he said.

In addition, the CMHC program is available only to people with an annual income of less than $120,000 and for houses priced lower than the local average.

Ourboro has expanded its operation from the Greater Toronto Area to other regions in Ontario, including Kitchener-Waterloo, Hamilton and London. Demand for homes in all of these areas remains high, despite the Bank of Canada having raised interest rates from near zero in early 2022 to 5 per cent today, with further increases possible.

Co-ownership model works for some buyers and patient investors

Co-ownership is a niche that may be worthwhile for some prospective buyers, said Lorne Andrews, principal broker at Dominion Lending Centres Expert Financial, in an interview with Canada Mortgage Trends.

“There are many people out there who could afford to qualify for the mortgage, but they don’t have the 20 per cent down payment,” he said. By partnering with a co-ownership company, the buyers get to build equity without having to share the actual living space with other co-owners; when they sell, if prices have gone up, they should have more funds available for a larger down payment for their next home, he explained.

The median sale price for single detached homes in Toronto was more than $1.3 million in the second quarter of 2023, according to the Toronto Real Estate Board.

Real estate investors, whether through co-ownership or otherwise, should not expect prices to rise wildly in the current higher-rate environment, BMO’s Kavcic says.

“Over a decade or more there are still strong demographic and economic fundamentals for residential real estate, but you’re going to need patience,” he says.

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