by Todd Lewys
If you’re looking to become a first-time homeowner or to downsize from a larger home, buying a condominium is — or so it seems —an affordable way to start building equity and have a maintenance-free home.
However, there’s one very important element of the purchase that cannot be overlooked and that’s condominium fees. When you buy a condominium, you are obligated — as one of many owners — to pay these fees. At best, they can be annoying. At worst, they can be confusing. If you don’t know what you’re getting into, they can be financially draining.
Consequently, it’s important to know what you’re getting into with those fees before you sign the dotted line.
In a nutshell, condominium fees are what tenants, who are considered owners, pay to ensure buildings and the grounds that surround them are kept up to the highest possible standards. It’s commonplace for condo fees to cover such things as common expenses, a contribution to the reserve fund (which covers repair and renovation expenses), insurance, grounds maintenance (snow clearing, grass cutting, trash removal), insurance and utilities.
Of the above list, the most important things to look at are utilities and the reserve fund. The reality is that many condos do not include all utilities in the condominium fees. In some cases, all utilities will be included. In others, water and heat (hot water from a boiler) will be included and sometimes baseboard (electric) heat will be included.
Often, condo owners will be required to pay hydro, or (perish the thought) both hydro and heating costs. Paying hydro isn’t all that objectionable, as it usually runs around $20 a month. However, heat and hydro costs can be substantial if the heat needs to be cranked up on cold winter nights, or the air conditioner needs to run day and night during summer hot spells.
That can mean an added expense of anywhere between $50 to $100 per month, so it pays to read the fine print if you’re purchasing a condo on a tight budget.
As important as potential utility costs are, looking at the reserve fund is even more important. As stated earlier, the reserve fund covers the cost of repairs and renovations to buildings and the surrounding amenities. Consequently, it’s critically important to pay attention to the condition of roofs, parking lots, plug-in stalls, sidewalks, building exteriors and balconies.
Particular attention should be paid to wood frame buildings, which don’t age as well as concrete and steel structures.
If you’re serious about buying a particular condominium, make sure to ask for two things: a copy of the latest reserve fund study (if one has been conducted) and board meeting minutes. Those two documents will provide good insight into how the complex is being maintained, and if any renovations/upgrading projects are in the works.
Should the reserve fund be low, or if it appears that a big project such as re-doing roofs or re-paving parking lots is imminent, it might be a good idea to decline the purchase, as a significant special assessment or big increase in the condo fees could be coming. If you don’t do your homework — i.e., examining the reserve fund study and/or reading the board meeting minutes — then you risk being financially broadsided by cost increases your are obligated to pay as a part owner.
Another important question to ask yourself is, “What I am getting in these condo fees?” Again, it’s important to be observant. As you walk around the complex, carefully note the amenities. Is there a gym, a pool, tennis courts? Are amenities such as indoor parking, a library or common (meeting/function) room — even guest rooms for visitors — part of the costs covered in the condominium fees.
In some cases, basic cable is even included in the fees. Add in the fact that you get a well-equipped gym and pool, and you might even save a substantial amount of money on cable costs and on his/her gym memberships. The bottom line is this: do your due diligence when purchasing a condominium and never assume anything.
If you do that — and hire a REALTOR® to guide you expertly through the purchase process — chances are it will be a sound investment that fits your finances and lifestyle.