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episode # 329

An Easier Way to Buy a Home with Daniel Dubois

It will take the average Vancouverite 40 years to save for a down payment to buy a home. You know what that means for most people? They will never own. It’s not hard to argue that this system is broken. Enter real-estate tech company, Key. Co-founder & Vancouverite Daniel Dubois sits down with Melisa and Matt to explain how Key reimagines home ownership through co-ownership agreements. Secure tenure & profit sharing in the Vancouver real estate market with as little as 10k down. No Down Payment? No Problem!

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Episode Summary


 

Who is Daniel Dubois? 

I was born and raised in Vancouver, started two venture-backed companies in college, and then sold those. After college, I joined Airbnb and moved to Toronto with them. I started looking for a place in Toronto to rent or buy. I decided to rent, which gave me freedom and flexibility, but I missed out on five years of appreciation. 

After my housing experience in Toronto, I knew there had to be a better way to still have the freedom and flexibility of renting but to not miss out on the appreciation of homeownership. That’s what led to Key. 

I pitched the idea for Key to a venture-capitalist and met my co-founder, Rob. We both left our positions to pursue our goals with Key.

Both of my parents are entrepreneurs, so it runs in the family. They always encouraged me anytime I was passionate about something. Entrepreneurship is a form of creation. Growing up, I used to pick moss in False Creek and at five years old, I would sell it door to door. So I’ve always been an entrepreneur. 

How did you get interested in real estate? Were your first two companies related to real estate? 

My previous companies were related to Key and real estate because they were also part of the sharing economy. I went backpacking in Australia after high school and got introduced to the sharing economy, which wasn’t a term at the time. I then watched a Ted Talk about the topic in college – it gave me goosebumps! I wanted to create a similar atmosphere in my own backyard.

The first company I founded was renting paddle boards and other gear from local owners. And the second company, Guides, was finding guides to lead you on outdoor adventures. My passion for the sharing economy continued to blossom from there. I learned that there are a lot of underutilized assets. 

I started a laneway housing company at 18 years old. I loved the idea of converting an underutilized garage into a vibrant housing community. My passion is eliminating waste, making an impact and working on solutions to challenges that can scale. 

What is the problem that needs to be solved in real estate?

In Vancouver, it takes 35 years to save for a down payment. Assuming real estate prices stay the same, which we know they don’t, you can’t buy a house until you’re in your 50’s. It’s a generational crisis. But it also affects entrepreneurs, new Canadians, frontline workers, etc. If you haven’t already built wealth in real estate, it’s hard to get in.

When I say real estate is binary, I mean that you either qualify for a mortgage and you buy or you’re locked out and you rent. If you have a mortgage, you need to maintain a lifestyle that allows you to service that debt. If you rent, you likely don’t invest in the real estate market at all. 

Key unlocks a third option: you can own a portion of the house you’re in for as little as 1-2.5%. The more you own, the less rent you pay. And every month, you can choose to purchase more of your home. After a few years, you have the option to purchase 100% of your home and pursue a conventional mortgage. But there’s also nothing forcing you to go that route if you don’t want to. If you leave a few years in, you leave with your deposits and appreciation. 

Key also incentivizes good behaviour from residents because they’re partial owners. They will treat their home like owners. 

What is Key? How do you get involved with Key? 

Key is a two-sided marketplace. On one side, the demand side, you have a direct to consumer brand for consuming real estate. On the other side, the supply side, you have asset-owners. 

On the owner-resident side, you can get pre-approved in as little as 15 minutes on our website. You can also tour our available homes online and join the waitlist. We currently have 5000 people on the waitlist in Toronto; we’re expanding into Alberta, Vancouver, Texas, San Jose and San Francisco. 

After the online or in-person tour, you can then put down whatever the asset owner requires for the minimum deposit. The minimum is usually 2.5% but we have groups who have talked about 1%, 5% or $5000. 

Let’s say you put down 2.5%. You would now have a 2.5% discount on market rent and you would have equity in the home. If you leave in a year, you would get your deposit returned to you, plus appreciation. If you decide to buy the home after whatever term the asset-owner implements, you can qualify for a conventional mortgage and purchase the home for the fair market value. 

Key isn’t just one model. We work with the asset-owners to decide on a number of different variables such as when the owner-resident can purchase, how long the owner-resident has to live there to retrieve their deposit back, how much of the home the owner-resident can purchase, etc. 

What are the benefits of being an owner-resident with Key? 

At Key, we say you get the benefits of owning with the freedom and flexibility of renting. The two main benefits of homeownership are an equity position that grows over time and security of tenancy. The freedom of renting is being able to get up and go, and not having household debt. With Key, you have more security and more freedom.

When can owner-residents buy their homes out right? What does the process of buying through Key look like? 

On average, the initial term is three years. So after three years, owner-residents have the option to purchase the home from the asset-owner. But you don’t have to; you can continue to be a co-owner. 

If the asset-owner chooses to sell the property after the initial term, the owner-resident gets first right of refusal. Second right of refusal goes to Key, where we can raise the funds or work with our other partners to buy the property. Third, the asset-owner can sell the property on the open market but must give the owner-resident six months’ notice. So an owner-resident still has 3.5 years of guaranteed tenancy. 

Are there rental increases with Key? 

Key is a private co-ownership relationship between the asset-owner and the owner-resident. And co-ownership relationships are actually exempt from the Residential Tenancy Act; it’s a separate private contract. We worked with various levels of government to create an owner agreement that is fair. Both parties go into it with eyes wide open so there are no surprises.

How big do you have to be to get involved on the supply side?

We want to democratize this process as much as possible. We have asset-owners who only own a handful of units in Toronto and Kitchener. We are mostly focused on single-family rental properties but see Key evolving to a place where any asset-owner could simply go online and list their assets. 

Does Key buy properties? 

Key is purely a marketplace. We’re a SaaS-based company. Other companies are now looking at Key as their real estate strategy. We don’t have a prop-co right now, but it might be interesting if we do one day. Key and our partners have the second right of refusal so even though we’re not a property company, we want the option for ourselves and our partners to be able to take another look. 

Are there risks for homeowners if housing prices go down? 

Of course, there is risk involved. If the market dips, so does your equity. However, it’s a lot riskier with traditional homeownership where you’re taking on a lot more debt. With Key, it’s more incremental and you can have the level of exposure you’re most comfortable with. 

As a society, we have high levels of household debt. What happens when the markets dip? Having a third option, like Key, where real estate is consumed fractionally is important. 

Does Key help solve the housing crisis?

Absolutely. It’s one of the biggest challenges we face as Canadians and Key takes on the housing crisis in a very direct way. We’re taking capital intensivity off the shoulders of consumers, allowing someone to start building equity from day one, and creating affordability because you’re sharing in the rental income. 

Affordable housing is important and we need to address all the stakeholders. But alongside affordable housing is affordable and accessible homeownership, which is what Key addresses. 

Do owner-residents at Key build equity every month with their rent payments?

We have a $50 forced savings plan. So at minimum, $50 every month is going towards your home equity. That $50 is on top of your rent and you can choose to purchase more.

Has disruptive technology had the effect on real estate you expected?

For Key, I don’t resonate with the word “disruption” because we’re not disrupting anyone. We’re adding more value and creating a win-win scenario. 

In many ways, it’s a very simple industry. There’s not a ton of focus on optimization or resident sentiment, which I think is changing. But traditionally, life is pretty good for your average real estate investor or condo developer. Everyone has done well. But now that the tide is going out, it will be interesting to see who is left underwater. 

Find out more: https://lifeatkey.com/

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