Likely at the top of your list is how much to spend on the purchase price. But in addition to your mortgage payment, you need to consider associated condo fees.
Condo fees are not always straightforward. There are a variety of factors that affect how much these fees are and how suitable a condo is for you as a homeowner. To help you discern whether your purchase will be right for you, we’ve put together this complete guide to condo fees.
Simply put, condo fees are a monthly fee your condominium association collects to perform building or property maintenance and offer specific amenities. These fees are separate, and in addition to, your monthly mortgage payments.
There are a variety of items that can be included in condo fees. These items vary from property to property, so you’ll need to ask what is included with each specific property.
Items that could be included:
Condo fees begin as a collective budget for the entire property and its needs. Fees for each individual owner are calculated based on the value of the unit within the building, as a general rule. As an example that would mean if the unit you are purchasing is valued at 4% of the building’s value, your fees will be 4% of the common costs.
This means you may find condo fees are lower in a larger building, where there are more co-owners to split the overall maintenance costs. However, this is very property-specific, as a larger property generally also means there is more to maintain.
Be sure to request a full list of the items included with your unit and how much the condo fees are when you’re working on your budget.
There is such a thing as being too good to be true. If you’re considering a condo that has much lower fees than another similar property, be sure to investigate the reason behind it. This may be an incentive for the property to sell units, but it equates to not enough collective money coming in to do proper maintenance.
You might find that your fees increase significantly at some point, or you’ll find yourself with an unexpected, large invoice from the condo association to complete repairs.
One thing you have access to as a prospective condo owner is the reserve fund records for the property. A reserve fund is a portion of the condo fees set aside for major building work, such as roof repairs, structural work, or exterior refresh.
There should be a good amount of funds held in this account, approximately 25% of the overall condo fees per year. If you find there is a questionable amount left in the fund, ask if any major repairs have been completed recently to account for the lower balance. If not, this property may have insufficient management of funds and that’s a red flag for you as a buyer.
Even with a solid reserve fund, a property may find some repairs expand outside of the funds set aside or that an emergency repair has come up. In this case, each co-owner within the building can find themselves facing an extra invoice of expenses. Since you are a co-owner of the building with all of your neighbours, you are collectively responsible.
If your condo association manages the funds well and has established appropriate condo fees, this is not likely to occur or will occur very infrequently. However, in order to protect yourself from any hardships ideally, you want to set aside a separate savings account so you aren’t caught unprepared if the time ever does come.
Freehold properties are multi-family buildings that do not have condo fees, nor are they managed by a condo association. In this case, this series of units are owned individually, while situated within a single building. As an example, a row of townhouses can be a freehold property.
The owners of these units are responsible for maintaining their portion of the building and grounds. In addition, if repairs need to take place to the roof, for example, the owners within the building will need to collectively work together to cover costs. This can be a disorganized process and you may find one or two owners unable to raise the funds for the repairs. So there are pros and cons to owning this type of property.
Condo ownership is the right decision for many prospective homeowners. A property that has well-managed condo fees and building maintenance is a solid investment for your future. Be sure to do your due diligence when deciding which property to invest your hard-earned money in.