For many homeowners and prospective purchasers in Toronto, the condominium property type is the most alluring - whether because of lifestyle desires, location or price point - or perhaps all of these. And why not? For those who love a lock up and go space, dream of walking to work, or can't afford the big sticker price of a freehold house, the city condo is a great housing choice. However, when purchasing a condominium there are several factors unique to this housing form which influence your quality of life as a resident owner. There are also some potential risks when addressing its asset growth as a suitable investment.
Here we provide five points to guide your fiscal and emotional due diligence to consider before making a purchase:
Who’s Your Neighbour?
We encourage you to exercise due diligence exploring whether the condominium you're interested in is in a building predominantly owned by investors, who may be renting their suites. First, if your building is dominated with investors and renters, as opposed to owner-occupants, then you could expect your neighbours to cycle through at a more rapid pace. From our experience, if a building is prone to a high level of transiency, the ability to nurture a collective community spirit is diminished.
There also exists an additional layer of vulnerability. If several investors decide to liquidate their assets at or around the same time, the value of your property could plummet as collateral damage. Although anecdotally there is thought to be a significant number of investors (particularly foreign investors) in the Toronto property market, there is debate about how much property is actually retained by investors versus owners who intend to occupy their suites. Here is a recent article in the Financial Post on that matter. There is a definite relationship between the growth of an asset and the frequency that this asset changes hands as well.
Also to consider in this category, because of the nature of the close proximity of residents in a condominium, what sort of community do you see yourself in? Do you want to be surrounded by retirees, professionals or young families? Certain buildings and areas will appeal to different demographics, or promote a mix. And don't forget that renters do not demonstrate the same pride of ownership as an owner, so the wear and tear on common areas could be greater in a building dominated by tenants.
The Value of the Unique
As you may have heard us itinerate before, (click here and here for our most recent forecasts) if there exists any vulnerability in the super-hot Toronto property market, it rests squarely at the feet of condominium high-rises which are concentrated in large swaths of former industrial lands or brownfields. This is mostly because of the abundance of stock, but also because of the ubiquitous same-ness of said stock. Basically, it’s hard to fetch top dollar when you are one in a mass of others. As we've written before, if you buy a one-bedroom suite in a 500-unit 40-floor tower - there's a good chance there are around 300 suites similar to yours in the same building that vary only by floor height, exposure and level of upgrades. If that tower is surrounded by ten other towers of a similar vintage, the resale value of your unit is completely dependent on the most desperate of many sellers at any given time. Does that make a wise investment?
We encourage our buyers to seek out the special, with unique features and qualities that create some distinction in the marketplace. Features like an intelligent space plan (the city is rife with bad design and inefficient layouts), additional parking, ceiling heights higher than 8 feet, a postcard vista, larger than conventional outdoor space and quality stylish finishes all will go far to help your suite stand out from the crowd, should you decide to sell.
Unlike a freehold house, where you as the homeowner bear the entire responsibility for upkeep in and around your home, condominium living offers a convenient, turn-key lifestyle where much of this is done for you - including things like snow removal, landscaping, maintaining and repairing common areas and amenities like hallways, pools, gyms and party rooms - paid by the owners in the form of a unit common fee that is typically calculated based on the size of each suite.
Of course, these conveniences come at a price. Before you select your condo, you should consider the amount of monthly common fees you're comfortable with, and what services you'd like included. For example, a multi-tower complex can economically support a full service concierge and comprehensive amenity space with pool, gym, and recreation facilities - given the cost is spread across many owners - whereas a small building with fewer owners will have significantly higher fees. And, because the condominium act was updated in 1998 to address financial shortfalls, older buildings pre-dating 1998 typically lack sufficient contingency funds to attend to significant upgrades or repairs, resulting in high common fees or special assessments. When you're searching for a condominium - complete your due diligence and look at the financials statements and board minute meetings to see what the real state of affairs are like. And then make the decision as to your comfort level. Also ask yourself, do you really require all the amenities you're drooling over? Will you truly use them? Don't get sucked into the hype of city vista swimming pool with cocktail bar, only to discover no one ever uses it. Will you, if you're the only one floating up there alone?
This is important for your own budgeting, and for determining the overall “value” of your living experience.
The Condominim Rules and Regulations
When you purchase a condominium you should review all the condominium documents in advance of making your purchase firm and binding. When reviewing these, it's imperative you also read the rules and regulations to determine how heavy handed - or loose - they are. Do the rules fit your lifestyle? How much control do you have over your outdoor space? Can you BBQ on your patio? Can you operate a home-based business? What about pets? Do your window coverings have to be a specific colour or type? If you want to use the party room, do you have to wrap up by 10pm even though the party is just getting started?
These concerns may not apply to you - but if they do, and you don’t anticipate restrictions, you might be stuck with rules you find constrictive.
You should also to look at the Condominium Board meeting minutes and/or canvass building residents to get an understanding if there are common complaints, which may suggest a problem that does not immediately meet the eye.
The Reserve Fund
What about the condominium’s reserve fund? Condo associations have money on reserve to attend to repairs and the like. In fact, condominiums are required by law to do a Reserve Fund Study, conducted within the first year after the condominium registration, and a new Reserve Fund Study generally every three years thereafter. This report should be included with the due diligence package that accompanies the condominium docuemtns
The Reserve Fund Study covers collectively owned building components like external walls, roofs, windows, heating/cooling systems, common corridors, underground parking, elevators, storm and sanitary systems, watermain and all collectively owned common areas.
The objective of a Reserve Fund Study is to gauge the condition of these components and prepare a schedule in advance for their maintenance, repair or replacement. In tandem with this engineering assessment, the study is obliged to establish a comprehensive savings program that ensures sufficient funds are available in the collective savings account when the fixes are required, so that condominium owners do not have to make up any financial shortfall by paying a Special Assessment. A Special Assessment is a charge that may be levied against a condominium unit by the board of directors of the condominium corporation if it lacks sufficient funds to complete repairs.
When you review the condominium documents, ensure that the Reserve Fund Study has been executed in accordance with the required time line - and whether it's recent or older. Do the numbers, dollar amounts and timeline all connect logically? If there is not enough on reserve, you could be looking greater expenses, should the need for these repairs arise during your tenure.
Are you considering condominium ownership? Beyond locating your perfect property, urbaneer can help you sort through the additional factors that support your peace of mind and property well-being beyond the transaction. We are invested in your happiness. With decades of experience in navigating the market and in matching property to person - on numerous levels - we are here to help!
~ Steven and the urbaneer team
Like what you've read? Sign up in the box below to receive our FREE monthly newsletter without pressure or hassle, on housing, culture and design in Toronto.