Friday, 14 August 2015

Condo Woes...

About two years ago, my fiance and I found an opportunity to downsize our living situation. We were on a lazy Sunday drive when we passed an open house sign and decided to pop in and check it out, mostly out of curiosity.

As it turns out, it was a newly renovated group of townhomes for sale. We were given the tour and saw that they were not only completely renovated and redecorated, but also quite affordable. After a few weeks of careful consideration we decided to list our then-current home for sale and write an offer on one of the units. Things were going exceptionally well and we were able to sell our first home quickly. We moved in shortly thereafter, but with hindsight being much better than forethought there are a couple of things I wish we had noticed earlier.

Condo Redevelopments

This particular development is an example of what I later learned is called a 'Condo Redevelopment'. This is where a developer/investor takes an existing group of apartments/townhouses and applies to have them rezoned as strata/condo properties(meaning each unit has an owner, instead of the property being owned by a landlord). And while this is an excellent way of creating housing supply in a tight market, it also leaves room for some major issues to pop up down the road. (Read here for more on stratas vs. single-family homes)

Most 'Condo Redevelopments' are accompanied by a large-scale remodel/renovation in order to make the units more appealing and to meet building and fire safety codes(separate the units, basic living requirements, etc.). If this is done correctly, then the results can be pretty fantastic, but as with any renovation there can be problems that pop up later on. One important thing to remember with conversions is that there is often NO New Home Warranty to fall back on later, so Buyer BEWARE! You must make sure to do your due diligence and to trust the contractor/developer involved.

Another potential pitfall with redevelopments comes into play when considering the financial situation of the newly formed strata. Despite the main building structure often being old, the strata group who is now caring for it is going to be new. This creates some problems because the group will have had very little time to start saving for repairs/maintenance, and there may also be a lack of planning or incorrect budgeting. With such a new group of owners, it will likely take several years to get finances in order and have a reliable budget and some savings in the bank. The security of strata living is diminished somewhat by this.

When it came right down to it, we were forced to learn some lessons the hard way. While I wouldn't want to see any of my friends or family go through a similar experience, I will say that I appreciate all that I have learned about new developments, strata law, and managing/maintaining a strata.

What can I do?

Ok, let's get to the good stuff. How do you avoid making similar mistakes when considering purchasing in a strata complex? Here's my guide:

1) Read the Paperwork!(Before committing to a purchase!)

Make sure you read all the documents thoroughly. Although the content is boooooring, it can save you a ton of money and headaches down the road. In addition to reviewing all the strata documentation yourself, you should also consider having your lawyer review some of the information as well as your purchase contract(if you have one yet). Of particular interest to prospective owners should be financial statements(how much money in the bank?), budgets(are the amounts reasonable?), and council/group meeting minutes. The meeting minutes should tell a story about how the property is managed, give insight into any potential problems, and alert you to any major costs coming up to be aware of/budget for. 

2) Who's In Charge Here?

Find out whether the strata is self-managed or cared for by a property management company. While a management company = higher monthly fees, it will also alleviate the stress and inconvenience of  DIY management.

Once you've got an idea who is running the property, make time to reach out to them and ask some questions. Ask about fees, any recent issues, or anything else you'd like to know about how thigns work. Each and every property will be unique so it can be invaluable to have the 'inside scoop' from the people in charge or maintaining and operating it every day.

3) Maintenance

 Also be sure to ask plenty of questions about upcoming maintenance, planned projects, etc. Try to get as clear an idea as possible as to what will need to be repaired/updated and when it will need to be done. This can give you time to plan for expenses that may get passed along to owners(if there isn't enough money in the strata savings).

Another great indicator of future costs is the Depreciation Report. Each strata is required by the strata act to obtain a depreciation report as soon as possible, and stratas must vote each year if they should choose to defer the report. A depreciation report is an in-depth analysis of all common areas and equipment on the property, along with an anticipated lifespan and cost to maintain for everything. It can be an easy one-stop guide to understanding the remaining economic life of the complex, it's buildings, and all the equipment to keep everything working correctly.

Many insurers/lenders are now asking for a depreciation report as part of the mortgage process, and it's easy to see why. They want an objective third party opinion of how long the buildings will last and how well they have been maintained up til now.

What Else?

Buying a strata property can be a great way to afford to own your own home without a lot of the hassle of regular maintenance and upkeep of a detached home. Owning a piece of a strata is like owning a piece of your neighbourhood; make sure you are buying into a group you will be proud to be a part of and that is properly managed and maintained.

One of the biggest benefits of purchasing in a strata is that you are given a chance to review the decisions that have been made, and to get to know those making the decisions. Taking the time to review the documents and to really get to know the people in charge can give you the chance to make the best decision possible as to whether this is the property for you.

Would I do it again? Probably. But I'd be armed with a mountain of paperwork and questions to ask first!

Through my first-hand experiences in strata living, I've definitely become a local expert and am happy to share my knowledge with you. Do you have questions about strata living? Give me a call and let's talk about it!

-RS

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