Investing in a Condominium — What You Must Know!

If you are looking to invest in a property but aren’t sure that you want to manage the upkeep of a traditional home, a condominium may be a good alternative. However, like anything, there are costs associated with having everything managed and maintained for you, which can quickly effect your profits. You might be surprised to discover how expensive owning a condominium actually is.. Especially when you get hit with a special assessment and have no control over when major renovations are to be done…

Lets start with the basics..

What is a condominium?

Condominiums are single units that are individually owned and located within a larger building or community.

A condominium is divided into:

1. Units: your individually owned unit apartment.
2. Common Elements: shared spaces such as the lobbies, walkways, elevators, recreational facilities, etc.

Owners exclusively occupy their respective units, while being tenants in common of common elements.

Parking and storage areas may be privately owned or treated as common elements shared amongst unit owners.

The condominium corporation “is the legal entity representing the collective interests of the unit owners, allowing individuals to own property while sharing the cost of maintaining the common elements with the other unit owners through condominium fees”.

Condominium fees

As a unit owner, you are responsible for paying a mandatory monthly fee that covers a wide range of expenses. Generally, the condo fee will include a portion of your utility costs, cover maintenance and common area expenses, building insurance, and contribute towards the reserve fund.

Note that each unit will differ in fees, depending on the size, location, age of the building and the condo corporation bylaws. As such, be sure to confirm the unit fees with your realtor and lawyer upon contract review.

Fees:

Utilities

Water and hydro are often included in your fee and sometimes heat. However, each condominium corporation will differ.

Maintenance and Common Area expenses

The maintenance fee includes basic operation of the condominiums common area’s. This includes cleaning lobbies and walkways, gardening, garbage removal, snow removal, etc.

BUYER BEWARE: Even though condominium owners pay the same taxes as other homeowners, they don’t always receive the same services covered by those taxes, ie. garbage pickup, road repairs, because condominiums are often classified as private communities

Reserve Fund

The reserve fund is mandatory for all buildings. Each month, a portion of your condo fee will contribute towards the reserve fund. The fund acts as an emergency savings account to be used to cover replacements and unexpected repairs. This includes things such as upkeep of recreational facilities or replacing carpets in the hallway, etc. Regardless of whether you use certain facilities, you are responsible for helping to maintain them.

If more funds are required to fund the project, a special assessment will be made and unit owners will have to pay an additional amount on top of their common expenses. Notices can be given quite suddenly and you may find yourself paying an extra $500 a month on top of current fees.

On the other side of the spectrum, if the condominium corporation realizes that the amount they are collecting is actually too much and the reserve fund is overly sufficient, unit owners rarely get a refund. If you intend on living in the building long-term, this is not so bad because it reduces the chance that you’ll be hit with a special assessment. However, those planning to move within a couple of years would have overpaid and likely not have seen any benefits.

This makes it extremely important to know how the funds are being managed and by whom. Knowing how to read the reserve fund document early on can help avoid unexpected surprises and costs.

Status Certificate

Every condominium has a status certificate. It’s advisable that you request the status certificate immediately for review.

The status certificate contains information such as,

• Condominium budget
• Status of reserve fund
• Management contract
• Any historic or current legal battles the condominium corporation has faced
• Current maintenance fee details and any upcoming large fee increases.

Rules

Living within a shared space means rules. Some common rules include:

• Pets
• Balcony uses
• Parking space uses
• Window Blind Colours
• Noise
• Guests

Rules should be confirmed with your realtor.

Other Considerations

• When discussing the fine details of a property, confirm the boundaries of the unit. You want to know whether the condominium corporation will cover expenses such as window cleaning, replacement, etc. of your unit.
• Condominiums can be strict on rules surrounding renovations to your unit and may make it difficult for you to use certain tools and large equipment. If you are an investor looking to flip a condominium, i’d recommend inquiring about such rules prior to purchasing the property.
• Condominium prices usually do not jump in value as significantly in comparison to individual dwellings. This is mainly because there’s only so much land to be build on — with condo’s, 100 can be added on one block of land, which helps maintain supply, balancing pricing. Whereas, with houses where one house sits on one block of land, there is only so much land available to add more housing supply.

CMHC’s Checklist for buying a new condominium can be found → here.

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