There are several factors to consider when buying a condominium. This includes reviewing how finances are handled by the condo board. This article details what to watch out for. Like other real estate properties within Ontario, the condominium market continues to thrive. In 2021, sales in the Greater Toronto Area (GTA) have increased over 70 percent. Half of this value came from sales of available condo townhomes and owned apartments.
This is a far cry from a few years ago. Sales slumped in the 2010s as investors took advantage of low interest rates to purchase free-standing homes. However, with the increase in real estate prices, and lack of inventory, people are returning to the condo market.
We thought it would be a good idea for a knowledge refresher about this real estate segment. Here are a few things to watch out for when buying a condo.
What Is A Condominium?
A condominium is an individually owned unit that is part of a housing or other residential complex. In most situations, the owners are responsible for the condo’s interior. This includes renovation, upkeep, and maintenance.
Conversely, the condo’s exterior, landscape, and common areas are under the auspices of the condominium association. The property owners pay a monthly or yearly fee to this management organization. In turn, snow removal, planting, and repairs/updates to the outside of your residence are handled through their organization.
There are several types of condominiums.
- A condo home is usually an attached unit, like a townhome, where you own the interior portion of the property.
- A shared condo, also known as a timeshare, is normally used as a vacation home.
- The detached condo is a townhouse that doesn’t share a wall with another resident. These are usually part of planned communities near metropolitan areas.
- A private condo/own apartment is a smaller residence with units rented out by the landlord. They differ from standard apartments as renovations are permitted. Additionally, the application process and criteria match those related to the sale of a home.
- Freehold condominiums are development units where the owner maintains the upkeep of the interior as well as exterior surfaces. The condo or homeowner’s association (HOA) works on the common areas.
There are advantages to condo ownership. For instance, you could have access to amenities like pools and parks that are maintained by the HOA. On top of this, since you live close to others in the development, a sense of community is created.
You could feel more relaxed in a condominium due to fewer repair tasks. Though you’re in charge of the interior’s upkeep, the outside is handled by the condo corporation. Thus, they take care of AC repairs, weeding the lawn, and cleaning your gutters.
Similarly, there are disadvantages to becoming a condo owner. Case in point, the extra fees residents must pay beyond their mortgage. An HOA has the power to charge several hundred dollars a quarter to cover exterior maintenance, grounds work, and your amenities.
Other owners talk about their lack of freedom living in a condo. You must abide by the rules and regulations set by the community’s governing board. This spans social issues, such as the hours you could have a party. It also delves into the changes you can or can’t make inside your condo.
When the market isn’t as healthy as it is in 2021, condominiums are harder to sell for the reasons mentioned above. It’s also difficult to get a proper return on investment (ROI) if the property isn’t in good shape or the HOA is known for its poor management.
What To Watch Out For
In the end, you want to watch out for certain items when you decide to shop for a condominium. Here are a few suggestions.
Check their condo status certificate
Prepared by a community’s board of directors, a status certificate reports on the current state of the condos they manage. Generally, it provides updates on the property’s well-being and its financial situation. For approximately $100, you have the power to request this certificate when you’re interested in purchasing a resale condo. However, the seller could provide this to you free of charge.
A status certificate contains the following information:
- The condo corporation’s management structure.
- Normal expenses and the value of their reserve fund.
- The corporation’s current budget.
- Legal issues or proceedings against the condominium.
- Upcoming repairs or maintenance.
A thorough review of the status certificate is highly recommended. Furthermore, it should be provided to a real estate lawyer with subject matter expertise of this paperwork. During their examination they might discover data related to an increase in HOA fees or a potential sale of the community to another company.
Check on current vacancies
It’s not hard to check on a condo community’s available units. An internet search on the property’s name or address should pull up a list of those for sale. What you don’t want to see is a community with an unusually large number of vacancies.
This could mean one of two things. First, the prices and HOA fees are too high for families to handle. Second, the community is poorly managed by the condo corporation. In either case, it’s best to avoid this area until you conduct further research.
Determine your return on investment
You shop for a condo the way you would for a home. Its appearance is examined, you obtain a history of repairs and upgrades, and you work to finance the process. What you also need to watch out for when buying a condo is the ROI.
This should already be high when you sign the contracts and get the keys. However, the ROI could rapidly fall if there are issues with the HOA board or the property itself. Hence, the reason you want to obtain a condo status certificate as soon as you make your decision on a unit.
Overall, shopping for a condo requires deeper research and thought as to its worthiness. If you do your homework and find the right financing for the purchase, then it could remain a high value for years.
A special assessment is enacted when the condo reserve fund doesn’t have enough money to cover the costs of a major, usually unexpected, expense such as new roof, repaving of parking, window replacement or balcony repainting. In this case, the condo owners are required to pay for the shortfall between the cost of repair and what’s left in the reserve fund. This can add up to tens of thousands of dollars. According to the Condo Authority of Ontario, purchasers, lawyers and real estate agents can request access to past condo board meeting minutes. Reviewing the meeting minutes should tell you of any issues discussed related to the health of the building.
Before you buy
Before you start looking, reach out to the staff at Cashin Mortgages to help you find the right mortgage solution. This helps you comprehend the specific rules behind a condo mortgage and what amounts you qualify for.