You’re thinking of buying a condo? There’s plenty to chose from! The problem is more about finding one’s ideal home because one size doesn’t fit all. You first have to shop around, visit and finally make an offer. The quest to find the perfect condo is often exciting at first but can quickly become tiring and disagreeable because it will require a lot of your time and energy. During the search, you will be faced with difficult choices and, at times, you might have the impression that you don’t have the tools in hand to make the best purchase. The key to success is to put more emphasis on analyzing the building rather than the condo unit in which you wish to invest. Bottom line, you don’t want to end up buying your dream condo in a building falling into disrepair; this would not be a good deal!
First assess your needs
Start by determining the areas that suit you and your family. Think of the services that you will need: (swimming pool, gym, movie theaters, etc.). Then, identify the ideal size for the targeted property. Remember that a building containing a few units will require a strong involvement in its management, thus much time and energy. If this is not suitable, you must opt for a larger building. The co-ownerships encompassing more than 90 units generally have sufficient financial resources to hire a specialized chartered building manager. Even in such instances, you will still have to get involved but on a smaller scale.
Creating value in co-ownership
After having assessed your needs, switch your attention to the building’s management. This step is crucial because a well-managed condominium building will keep increasing in value over time. The generation of value in co-ownership is the result of two essential elements: the preservation of the building and the quality of life it offers. Like other co-owners, you are first looking for a safe environment, well-kept, agreeable, in short a great place where to live. Even more important for you as an investor, your real estate asset must appreciate in value. Know that the better the management, the more the building will be prized. The return on investment will therefore be better. In order to help you assess the quality of management of any co-ownership building, parameters are easy accessible.
The funnel parameter
Condominium fees are necessary sums of money for the administration, the maintenance and the preservation of common areas of a co-propriety and are payable to the syndicate by the co-owners. These charges serve as funnel or standard parameters to estimate quickly and roughly the value of a building. All that is needed to identify them is a quick look at the list of units for sale. Once the condo fees have been determined, all that is needed is to compare it to the number of square feet offered by the coveted unit*. The larger the unit and the more services offered (swimming pool, gym, sauna, 24/7 security, maintenance, etc.) the higher the condo fees should be.
The golden rule of condo fees
Never look to buy a condo in a building where the condo fees are below $0.30 a square foot no matter the services offered. Condo fees that are too low indicate that the syndicate (the whole of the co-owners) do not have the necessary budget to properly manage the co-ownership. Management as such is certainly deficient. This decreases de facto the value of all the condos in the building. In fact, a 1,000 square foot unit with monthly fees of $150 should be crossed off your list (1,000 x $0.30 = $300). If you forget the golden rule, ask yourself this question: is $150 in savings sufficient to maintain a small house (the roof, the windows, the garage, the pool, the fence, the garage entrance, etc.)?
Beware of condo fees that are too low
Touting very low condo fees seems to be the norm at present for new condos. The developer’s goal is to appeal to a maximum of buyers. It should be pointed out that the developer does not cash in the condo fees, only the sale price of the unit. The condo fees will be used to manage and maintain the building once the developer will have left…after having transferred the responsibility of the management of the building to you, the new co-owners. As a result, it is difficult for the co-owners to adjust the condo fees at the right scale; the ability of co-owners to spend more is often exceeded. This dubious practice has severe repercussions as it is known that a large part of condo buildings in the province of Québec suffer from a chronic maintenance deficit. Inasmuch, the present lack of legislative regulations in the condo industry is akin to a Far West period.
Refine the methodology
The level of condo fees is an accessible and simple gauge, yet it remains incomplete and vague. To find the rare gem, it is recommended to evaluate many other factors in order to further streamline your search. A good methodology will ensure that you will avoid many unsuccessful visits, much time and money. It is possible to avoid costly mistakes that you might regret for a long time.
Elements to go over with a fine-tooth comb
Three documents are necessary to better assess the value of the condo building: the declaration of co-ownership, the syndicate’s financial statements and the minutes of meetings. These documents are accessible, just ask the seller or his real estate broker by email. On receipt either will usually send your request to the building’s management. If management is slow in sending you the documents, conclude that this is an indication that management is shaky. Good shopping!
*The condominium fees are based on the relative value of the units that take into consideration many factors and not exclusively the size of the unit.
Published on August 24, 2016 – Ordre des administrateurs agrées du Québec.