Thanks again to Mark McLean, the Vice President of Business Development at Key Living.
If you want to get in touch:
Tik Tok: @marcomclean
Videos | July 28, 2021
Thanks again to Mark McLean, the Vice President of Business Development at Key Living.
If you want to get in touch:
Tik Tok: @marcomclean
at 7:57 am
I see an @TikTok in a byline and suddenly I feel less inclined to watch. I wonder why.. :/
at 8:31 am
I’m late to the party here but would have liked to ask what buildings these units are in? Assuming the model is to stick to a couple of buildings to streamline the process.
at 12:01 pm
Thank you David for bringing these three projects to our attention. See, this is why I come here. Aside from the great discussion we all get to learn something new occasionally as I had never heard of any of these before.
I missed the opportunity to ask a question but it was a great interview which answered many questions but also raised more questions. Perhaps a bit more lead time in the future would be good to allow us to check the website and think about it before asking questions. In this case, I think a follow-up interview down the line would be great in order to see how things have progressed and to address follow up questions unless Mark is willing to answer them here.
My initial take on this was skeptical as usual but cautiously optimistic. I always approach new ideas with an open mind. I find these things can go either way where mostly they go south, but occasionally you find a good opportunity. I was going to write on Monday that this type of idea should work if like-minded people get together to do something good for others. I was thinking that as long as this is some sort of activist type of deal where the “client” is put ahead of the companies, and its investors’ need/greed there is the potential to benefit everyone. The problem with these, as is painfully obvious from the first two, is that the company comes first and therefore takes the benefit where the “client” is last in the pecking order.
However, based on this interview, I get a sense that greed is not the driving factor, though I have to caveat that by saying that a company can, and they often do, change the rules of the game down the road. Your classic bait and switch. The idea of buying up a building to save costs for the developer/Key Living/clients does sound like a too good to be true situation but as long as the business plan works it could be a win/win/win for all involved.
I love the idea of being able to drive change in the building process where it may be possible to get away from meeting minimum standards and maximize profit in a screw the buyer anyway we can scenario, that is all too common now, which would allow for positive changes both in build quality and amenities. Perhaps they can eliminate this “amenity creep” we all hate so much but have been helpless to do anything about because the government chooses to let developers have their way with us.
This model has such a great potential to disrupt on so many levels that I truly hope it works well and they can scale it up so that they can meet demand which, in absence of a gotcha, should be significant. I mean, this does seem to be addressing a market segment that has been complaining that they are locked out of the market which seems to be growing.
at 1:58 pm
I followed the link for “Investors” and it says this:
Does Key own any real estate?
Key doesn’t own any real estate. Key owns a marketplace technology platform and offers a property management service to real estate owners.
I don’t think I picked up in the interview, or elsewhere, the entity or entities with whom a purchaser will co-own the unit?
at 2:05 pm
Ahhhh, it seems that Key recruits existing condo owners / investors to list their units under their model instead of renting our outright selling their units…. Sorry if I was the last to know 🙂
“In addition to professionally managing suites and helping condo owners fill their vacant suites with residents who behave like owners, Key protects owners in the event that an owner-resident experiences income interruption and is unable to make their monthly payment. In such an event, the owner is able to deduct monthly payments from the owner-resident’s home equity, which equates to at least 6-8 months of rent.”
at 3:02 pm
I haven’t looked at their site but it seems to me that they’re behaving like a private bank. The owner gets full title, while they most likely put a lien on the property for the amount the owner doesn’t own and he even talks about taking equity out just like you would with a HELOC. I believe in order to be able to take advantage of the PR exemption you’d have to have title on the property.
” it seems that Key recruits existing condo owners / investors to list their units under their model”
This could be exactly what I was thinking of that I mentioned last week buy selling my unit to an investor but remain in the unit for the long term to unlock my capital but not worry about being kicked out. If you can in fact retain title it essentially becomes a reverse mortgage. You can take out equity as you need it where according to the interview you can stay in your unit for “below market” rents and not have to deal with a landlord. This is one area where they can potentially disrupt the market I was referring to in my post.
at 3:23 pm
Key is actually 2 entities. Key Residential Properties owns the real estate where the investors are long term capital players like pension funds, our owner residents (with their 2.5% minimum) and even existing condo owners. Title of the condo goes to Key but the owner resident signs an agreement that gives hime legal rights to their share of the property. Key Limited Corp is the service provider who builds the management components and technology. KRP will pay a small management fee to KLC but we’ll also provide management services to real estate portfolios. Hope that helps. BTW we launched our frontfundr campaign today. You can check it out here https://www.frontfundr.com/lifeatkey
at 1:28 pm
Hello Mark. Thank you for responding here. I guess by commenting you have opened the door for more questions. I have a few is your willing:
1 If KRP retains title how can you be sure that the owner resident will in fact be able to use the PR exemption? Have you consulted the CRA to see if your legal gymnastics will stand up against GAAR?
2 Are you regulated by any of the government agencies or are you able to fly under their radar? I would imagine you’d be considered either an investment dealer or a financial institution.
3 The biggest risk from an owner resident point of view that I can see is company risk. What happens if either of the two entities went out of business or simply want to exit if the beta test fails? More specifically, what is the ranking of the various stakeholders?
4 On a more personal note, all though I’m sure I’m not the only one to think of this, if I sell my unit to KRP and want to invest my equity elsewhere, can I take out 97.5% equity, remain as a resident owner and keep it at 2.5% until a future time when I might decide buy back more? Or any variation in between?
5 as someone else asked, how do you account for increasing maintenance fees, property taxes and most importantly, special assessments?
6 Finally the obvious one: is this going to be available for houses?
7 bonus question I just thought of. How do you handle evictions? This shouldn’t be necessary under normal circumstances as long as the resident owner pays and doesn’t otherwise cause problems. But what if KRP decides to sell a unit?
I think you have huge potential in this to help a lot of people. I mean if people can use you to serve as a reverse mortgage and your model works out, all the reverse mortgage players can pack up and go home now.
at 1:47 pm
Bonus bonus question. Possibly the most important: for people who are looking to you for home ownership will you let them take the final step? Can they obtain title if they pay you the final 2.5%? I think this is very important because by that point they would have lived there for a long time and totally treat it as their home.
at 3:23 pm
A ton of great questions. may take me awhile to get through them all. lol
1. We’ve been at this for three years and have been working with all levels of gov’t to make sure our model stands up. If you live in our model it is considered your primary residence thus any money you make is tax free.
2. Not so much regulated as following existing rules. We are set up as a mutual fund trust
3. All real estate is owned by KRP (consisting of pension, wealth funds etc and Owner residents) and of course some bank debt. That’s pretty solid. KLP is the management co that our team works for so if something happens to us then KRP would simply hire a new management co.
4. If your condo meets our standards, yes we would buy it for 97.5% of value and you would remain 2.5% owner. You’ll pay a monthly equivalent to market rent which is discounted by your % ownership. you can add equity at your own pace if you wish (which would also lower your monthly payment)
5. Key locks in your monthly payment for 4 years however if the taxes or maintenance fees go up those increases are passed along to you ( the same as they would be if you owned the unit yourself)
6. Houses are not on our immediate roadmap.
Bonus 1. The most of the condo you could own is 90% but I don’t think anyone would do that. Our goal is to get people with limited $ to get into homeownership and build equity to the point where they will leave and go the traditional ownership route
KRP is on title as the owner, the Owner Resident signs an agreement that gives them legal right to their % ownership. That’s an asset.
Hope that helps. Probably best to call me if you have more questions. I’m a slow typer. (hunt and peck method)
at 6:34 pm
Appreciate the responses. Pro tip is you can dictate your responses on most phones pretty easily now days. With minor corrections or should go fast.
It’s just an idea for now but I just might take you up on your offer down the road. But it sounds like a pretty good match for both parties.
at 9:24 pm
Thanks for the interview, David! Would love to see more in the future!
A quick look at the monthly residency payments (aka rent) on Key’s website, and they appear to be slightly below market. So in a nutshell, with Key Living, you get a nice condo downtown at a good price, all the while having the opportunity to grow your savings in the real estate market. If you are going to go out and rent a condo in a central location anyway while trying to grow your deposit money, the Key Living model seems to be a decent strategy.
This may not be a common scenario, but what if someone likes the condo so much that they want to keep living in it for 20 years? Wonder if there is a cap on how many years the owner-resident can occupy a location. If they are allowed to, say, stay for 10 years, surely the monthly residency payment must be adjusted upward to account for increasing costs/inflation? What formula will they follow since this arrangement doesn’t fall under the RTA or provincial rent increase cap? It’d be pretty sweet to keep paying below-market rent while throwing my savings into the condo equity to grow until I’m ready to retire and cash out tax-free (courtesy of principal residence exemption). What is the maximum percentage I can increase my co-ownership to? Can I eventually buy it out? This arrangement could attract high-income earners who want to be lifetime renters. I know the intent of Key Living is probably not that so their contract will probably account for such a scenario. Fascinating stuff!
at 3:25 pm
The most you can own is 90%. and you can stay for as long as you want. Owner resident payment is reset every four years (to market)
at 9:24 am
If true that the monthly payment for an end user, will be lower than market rent AND the end user gets to build up some equity, then Key Living seems like a legit option over renting, but i’m not sure i’d call it “owning”. When you own a home (even if you have debt against it), you have full control of the property rights. In this situation, the end user is a minority equity holder, sure they can increase their percentage, but i’m pretty sure they can’t just do as they wish with the unit. And if you truly owned a unit, you could sell it on the open market, rather than receiving an appraised value.
Not sure if there is an opportunity for follow on questions, but one thing i’d want to ask, is why would a pension fund back this vs simply building a PBR, or buying a building to convert to a PBR? With a PBR, they get to charge full market rents and keep 100% of the appreciation, so what’s in it for them that they would settle for lower returns, while being subject to essentially the same market risks as a PBR?
David, if you are showcasing more “ownership” models, one company that seems to have an established track record of delivering what they’ve promised is Options for Homes: https://www.optionsforhomes.ca/#how_it_works. And another co-ownership/shared equity company is Neighbourhood Capital: https://ourboro.com/
Would love to hear your thoughts on them.
at 1:11 pm
Purpose-built rentals by pension plans and insurance companies (whether built/invested in directly, or by acquiring substantial unit numbers within developments in progress) is exactly what Key Living is enabling.
These long-term investors are super interested in the rental market, and finally we have been seeing PBRs come to market. However, they are spooked by the tenant-favourable legal protections and the fact that legal rules can change anytime. Specifically, in Ontario, we had already had two waves of new buildings go from not being subject to rent control start to being brought in to be governed by rent control provisions (buildings first occupied after 1991, then those first occupied after 2018). Combined with 6-12 months LTB process to kick out someone not paying rent, this is not something investors want to deal with.
As another commenter previously noted, this is a clever ‘scheme’ to go around RTA rules – get $15K deposit, invest it, charge any late rent against it. Increase rent any time. Get tenant to move out much faster if they can’t pay, because they effectively pre-paid for ~6 months rent.
What’s the most likely scenario here? Withdraw $15K from RRSP, where that same money could be making 5-7% in the market at a low cost index fund. Put it forward as “downpayment” (rent deposit), get back 5-7% (average Toronto condo appreciation rate) when you move out. Sure – it’s capital gains exempt as principal residence – but so would your gains be if you just left the original amount in the RRSP, from which you could have draw up to $35K towards your first home purchase anyways.
SURPRISE! Now because you were a Key Living “owner resident”, any extra RRSP funds you may have had, or accumulated further – between $15K you took out for Key Living deposit and $35K – can no longer be withdrawn under HBP.
So, as “owner resident”, you are:
– Paying around market rent
– Even if it’s slightly below now, you’ve signed off RTA protections and rent can be jacked up later, reducing or eliminating any ‘shadow equity’ gains
– At some of the worst condo buildings in Toronto (horrible “investor” layouts, Urbancorp…)
– Making roughly same return you could get by keeping the funds within RRSP and investing into the market (stock ETFs, REITS…)
– Losing HBP (!!!)
– Losing first time homebuyer credit
– Giving your landlord ~6 months rent deposit (!!!)
– Getting “flexibility” of 75 day notice (vs 60 market standard)
But, on the flip side:
+ “Feel” like an owner
+ Feel like you’re “building equity” (even if you’re not on the title…)
+ Tell friends and family you “bought your own place”, “are an owner”, “are no longer renting” (LOL)
at 1:19 pm
at 2:10 pm
I think most of these are a reasonable trade off of it means you can “get into the market” now where you wouldn’t stand a chance otherwise. If you “win” your house by over paying a $100,000 that goes a long way as an advantage for key. If they let you take title imagine that you eliminate the entire buying process and the associated pain.
BHP you get back after a couple of years, years. 6 month deposit is a reasonable protection for the investors and shouldn’t be a major issue as long as you are someone with good intentions. If you are one of those who likes to trash the place, not pay rent and move out then, yeah this is not for you.
The big one is how they handle rent increases. Even this shouldn’t be a problem if they are reasonable. The problem I see is that pension funds want to get paid and they might force Key’s hands to raise rent.
If they have any common sense KRP is not going to invest in bad layouts.
RRSP vs home ownership is a stand alone issue people need to decide on even if they bought the conventional way. You are an equity holder therefore your value is going to be driven by RE prices. I wonder if Key is who David was referring to when he wrote about investors buying up condos in the cheap last year. If this is the case that tells me that the people at KRP are very astute investors and that should bode well for the future.
at 4:31 pm
IF you can buy a property, meaning you have the deposit, the closing costs, have great credit and can get a mortgage AND plan on staying in your home for awhile then buying is the absolute right option for you. If on the other hand you are locked out because you haven’t enough saved OR can’t qualify for a mortgage but you’d still like to “own”, then we want to help you. The unit you pick is yours so you’ll never be asked to leave. The model is not for everyone, but as I said, we are building a third option for the city. Turning renters into owners!
at 9:41 pm
If one is locked out of the market, they are still WAAAAAAAY better off keeping their funds in RRSP where gains are also tax free (and can be same or higher, depending on what one invests in), continuing to invest into RRSP, and taking advantage of HBP to the full $35K once purchasing their first actual home where they are actually an owner where their “monthly payment” doesn’t reset every 4 years.
Losing out on HBP is a HUGE deal that you are conveniently not disclosing, Mark – and quite a few of your renters will be in for a rude awakening if they ever crunch the numbers on the full opportunity cost they’ve paid.
Oh yeah, and we didn’t even talk about Toronto land transfer tax for FTHB…
2.5% below market is honestly not that great of a deal, and very much within margin of error where one can find a unit on the market as-is with a bit of effort and without putting up $15K of cold hard cash.
And looking at the previously rented units on Key Living website, depending on when exactly they were rented – especially if many of these were during the pandemic super depressed condo rental market – many even look to be above market rents for those specific buildings.
at 3:28 pm
yes, monthly residency fee is lower than market rent. It’s discounted by your percentage ownership. Part two, Pension funds aren’t interested in managing apartments.
part three. Options for homes is a great product but you still have to qualify for a mortgage. Its only open to some tridel buildings and only for the first resident. subsequent owners aren’t given the shared equity option.
at 10:51 am
I scanned through the website and video. I think my largest concern with the business model is the potential financial sophistication asymmetry between the resident-owners and the corporation as there are many variables to consider. For example, there is nothing wrong with a payday loan business that offers reasonable rates as it offers a needed and valued service to its customers. However, having a good grasp of the concepts requires a degree of financial acumen and those that possess it would more likely (or prefer) be an investor (only $500 minimum) in the Key business itself rather than be a resident-owner.