Questions to Ask Before You Buy a Condo – as an investment or as your home
“The builder decided not to look at your offers or any of the offers that came in this week,” the frustrated realtor explained to us.
We tried to dig into the situation calling on people we knew who had financed some of this guy’s projects and reaching out to other people who knew the project but all we found out was that one of his other projects was not getting financed and that he is probably going to be trying to squeeze every dollar he can out of every condo in the building to pay for the other project.
If that was the case we were baffled that he wasn’t even looking at our offers. At least we were puzzled until about 10 days later we received an email with the new price list!
We had been putting an offer in on a condo and an office condo unit in the same building. After nearly a year of trying to find somewhere to live on Vancouver Island we finally decided to settle for ‘good enough for now’. The numbers worked for us on the two units and having a separate office unit in the same building kept us close to work without having it in our house (something we’re finding is necessary to give ourselves some home and work balance given that we are husband and wife running two businesses together it’s hard to tell what is marriage and what is partnership).
When the new price list rolled in and everything had gone up 10% (approx. $50,000 more!) we choked, then spit, then laughed. How obnoxious of this guy to jack the prices up so high when the units were finally selling (i.e. the prices finally made sense given current market conditions). The realtors who had been working so hard to sell his property out for nearly two years pretty much quit on the spot and we certainly weren’t ever going to buy from someone who treats his customers like that.
I’m happy because we’ve found a 2700 square foot old character home with gorgeous ocean views AND a large inspired space for an office on the main floor that we can call home and work. It gives us the professional feeling we want in the office space AND the separation from our home – without having to add a commute to our day. It’s WAY better than the condo option we were working on. But the whole process of doing due diligence on the condo units and working on buying them reminded me of just how different it is to buy a condo than it is to buy a house. I wanted to share some really important differences and considerations/questions to ask before you buy a condo – whether for you to live in or for an investment:
- What’s in the minutes? If you do nothing else when you are considering buying a condo but read the meeting minutes from the last few years of condo board meetings then you’ll be in good shape. The meeting minutes have so much information on current, past and potential future issues that you may have to deal with. It also will give you an indication of how the property management and condo board get along and how it’s run. This is critical because these folks make all the decisions for the condo and if you’ve got bad relationships or people who have no idea what they are doing you can end up with an expensive disaster on your hands. Couple of key things to pay attention to are complaints from residences about a nagging issue or something the property manager says needs to be addressed soon. When we bought our vacation condo in Whistler one thing that stood out in the early meeting minutes were the complaints from folks in the summer about how hot the units were. As you moved forward through the minutes you found out they resolved the issue by installing air conditioning units. This increased the fees. Watch for things that could be expensive (leak complaints, window issues, or landscaping contracts going wrong).
- What are the parking options? Dave used to live in a large condo down on Front Street in Toronto, ON. There were 8 visitor parking spots for 100 units and parking was really expensive around the property. It was a pain in the butt for him to have guests because he never had parking for them. He was happy he was a renter and could just move out to solve that problem. Ever since then we always find out exactly WHERE our parking spaces are for condos, if it’s registered on title with the unit (i.e. we own it), whether we can buy additional parking, and where the parking options are for guests. These are HUGE issues and I think a lot of people buy condos as an investment without concern for the location of the parking space. With the condo unit we just about bought the residential unit came with 2 spaces but the office came with none. That was a big concern for me. Where will our assistants park? Where will our visitors park? Parking is cheap in the area right now but for how many years? It was a big reason we wouldn’t pay any more for the properties because we had a big issue with this. Parking can cause significant tenant turnover on any kind of rental – condos are certainly no different! Not to mention, poor parking options can hurt your resale value as well!
- Storage? We wouldn’t have even made an offer on the condo building if it weren’t for the fact that we had submitted and had accepted a plan to build a large storage space at the front of our parking spaces. We wanted somewhere secure to store our sporting equipment and old files. The little cages they were providing wasn’t large enough for a bike let alone 2 bikes, skiis, hockey gear and other items. People have stuff and condos do not give them much space to store that stuff so storage is critical. Make sure the unit has adequate and secure storage.
- Reserve Funds, Amenities and Monthly Fees? Lots of people love the fact that their building has a pool, gym, and 24 hour security. And renters will love that too BUT these amenities (especially a pool) can get very expensive. You WILL pay for this in your monthly fees and in our experience the monthly fees tend to rise faster than your rent does so it can quickly squeeze your cashflow if you have a lot of extras you have to pay for in those fees. Take a good look around the property to understand what is covered in the fees, how quickly fees have risen in the past and what other issues (like cooling or heating problems or lack of bike storage or leaking windows) that could come up and cause special assessments or fee increases. You also need to take a good look at how much the condo corp has set aside for the reserve fund. That is intended for the maintenance items that are guaranteed to come about over time. If there is a small reserve fund, be concerned especially if your property has low maintenance fees and lots of amenities. Ask around and find out what’s normal for buildings in the area with similar amenities. Ask realtors who specialize in condos what their experiences are with turnover in the building. Learn all you can about what’s going on with the building and how it’s being run so you can minimize the surprises over time.
There’s so much to learn with buying condos but these are critical considerations and questions to ask. And if you’re looking at new construction wondering how you can mitigate these risks – you’ve got a big challenge. New and pre-construction condos don’t have any history you can review. They don’t have a few years of operation to see how they are being run and it’s sometimes questionable as to when they will be finished (depending on where they are at in the construction process when you look at buying them). The due diligience you need to do on those properties comes back to researching the people involved in the process! It’s totally different.
For now, if you’re looking at a resale condo of any kind make sure you get a giant coffee and settle in to review minutes, reserve fund details, and spend time walking the complex and asking about parking, amenities, security and what’s normal in an area for fees and issues. If you do that you’ll have a good sense of what you’re getting into – and whether you’ll be making money on the investment or living in a property that is always going to have it’s hand out for more!
by Julie Broad
