Real Estate Insider: May 2018 News Report

Hello there, Real Estate Insiders! Get ready for some of the most important topics we've discovered yet. Why you need a lawyer if you're selling your house, the best way to approach mortgage renewal, and why it's harder for Millennials to buy are just a few of the reads we have in store for you. 

There’s a lot of things you can do to save some money, but skipping out on a Real Estate lawyer when buying a home should NEVER be one of them! Read why it can end up costing you way more than the legal fees if you decide to buy a home without a lawyer. >>

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While owning a condominium in Toronto and renting it out may seem like a great investment, it appears nearly half aren’t getting enough rent to cover their costs. Is it still worth it? >>

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If you sold your home after 2016 and didn’t report it to CRA, you might be looking at hefty fine! Read here to stay updated on all the forms and necessary steps to avoid an unwanted call from the CRA. >>

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If you own a rental property with more than two people, tax season can be tricky! Be sure to know how to split these taxes fairly, and you can start by reading this article! >>

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If you are thinking of investing in your first rental property, this article is for you. Be better prepared to make this decision. Should it be a house or condo? Duplex? Where are you living now? This article has all the right questions you might not have thought to ask! >>

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“My mortgage comes up for renewal this year.” If you are in the same boat as these authors then you should definitely read their mortgage renewal strategy to help with your own! >>

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Think that if you can afford the down payment and the mortgage payments you can afford a house? Think again! There are a lot of costs involved in buying a home and we want to make sure you are financially prepared for all of them. Read this list so there are no surprises on closing day! >>

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Real Estate Lawyers discuss the "5 Things to Know about Government Standard Lease Form”. >>

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The 2018 OSFI stress test has cut Millennial purchasing power by over $40,000! What does that mean for first time home buyers? >>

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With a lot of things now being done online, should dealing with a mortgage broker be one of them? Read the pros and cons of going online for a mortgage. >>

Condo Living - What Is A Reserve Fund?

For many people, THE MOST CONFUSING aspect of condo living comes from the reserve fund.

When looking at purchasing a condo in a specific building, it is general practice to review the latest reserve fund study. But what exactly is a reserve fund? And what should one look for when reviewing a reserve fund study?

‘Reserve Fund’ - An account set aside by an individual or business to meet any unexpected costs that may arise in the future as well as the future costs of upkeep.

“Reserve Fund Study” - A reserve study is a long-term capital budget planning tool which identifies the current status of the reserve fund and a stable and equitable funding plan to offset ongoing deterioration, resulting in sufficient funds when those anticipated major common area expenditures actually occur. The reserve study consists of two parts: the physical analysis and the financial analysis. This document is often prepared by an outside independent consultant for the benefit of administrators (Board of Directors or Strata Council Members) of a property with multiple owners, such as a condominium association or homeowners' association (HOA), strata, containing an assessment of the state of the commonly owned property components as determined by the particular association's CC&Rs and bylaws.

Source: Houzz

Reserve studies are in essence planning tools designed to help the board anticipate, and prepare for, the property's major repair and replacement projects. For example, such projects would include: replacement of the roof on the building(s), replacement of the boiler, retrofit of the fire alarm devices, and resurfacing of the roadways.

The reserve fund, as we know from last week’s post, is funded through the monthly condo fees of the residents. This reserve fund essentially smoothes out the costs of the major repairs and replacement projects.

Proper planning and financial management is essential in making sure funds are accessible as the need for these projects arise.

Subsection 94 (1) of the Condominium Act, 1998, requires the corporation to conduct periodic studies to determine whether the amount of money in the reserve fund and the amount of contributions collected by the corporation are adequate to provide for the expected costs of major repair and replacement of the common elements and assets of the corporation.

Source: Malvern

These periodic reviews, are important to ensure the existing reserve fund and planned reserve fund contributions (assets of the corporation), meet the expected costs of major repairs and replacement (liabiliities of the corporation).

Otherwise, the corporation could be surprised one day and not be able to meet its obligations, and be required to levy special assessments on the residents, who may have problems in paying.

Make sure when you are looking to purchase a condo in a specific building, that you review the reserve fund and latest reserve fund study, to make sure the condo corporation “has their financial house in order”. Otherwise you could be looking at unexpected future costs.

It is also a good idea to have your lawyer review these documents to ensure there are no irregularities. Better safe than sorry.

Next up we look at what factors to look for in a stable condo building.

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Russel Lalovich
russel@lalovichrealestate.com
Office: (519) 966-0444
Cell: (519) 995-5620

The Truth About Condo Fees

Often we hear people say, “I’m not interested in buying a condo because I don’t want to pay condo fees.” Or sometimes condo owners tell us, “I pay these condo fees every month but don’t know where the money goes.”

Well, today we are going to discuss condos and where those monthly condo fees go!

First a technical definition of a condo:

A condominium, frequently shortened to condo, is the form of housing tenure and other real property where a specified part of a piece of real estate (usually of an apartment house) is individually owned. Use of land access to common facilities in the piece such as hallways, heating system, elevators, and exterior areas are executed under legal rights associated with the individual ownership. These rights are controlled by the association of owners that jointly represent ownership of the whole piece.

Put simply, when you own a condo, you own the square footage inside your unit, and are entitled to use the common areas of the building. This common element is managed by a condo corporation within the building. This condo corporation basically runs the operation and the finances of the building. Every unit owner is obligated to pay their share of the operating costs of these common elements of the building and condo fees are how that is administered.

Source: See Windsor Real Estate

Typical Expenses Incurred By Condo Corporations & Funded By Condo Fees:

• Utilities of common areas
• Maintenance of common areas
• Management of the corporation and building
• Safety/Security (Cameras/concierge in some buildings)
• Garbage/Recycling
• Landscaping/Snow Removal
• Insurance
• Allocation to the Reserve Fund (which is a topic we will discuss in depth in an upcoming post)

In other words, you are paying for the convenience of walking into your unit at the end of a long day, and having no worries outside of keeping up the interior of your unit. You also don’t need to budget for upcoming capital items the way you would in a house (like a roof) as that is built into your reserve fund allocation (unless the reserve fund is underfunded and a special assessment comes in, which we will also discuss in another post).

This works well for certain people, namely younger and older people, because it allows them to budget consistent costs for housing and not have to worry about maintenance.

To summarize, you aren’t throwing money out the window when you pay condo fees. You are paying your proportionate share of the operating (and future) costs of the property.

Were you part of the percentage of people who already knew this about condo fees? Leave a comment to let us know.

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Next up we will be talking about reserve funds – a topic that confuses lots of buyers.

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Russel Lalovich
russel@lalovichrealestate.com
Office: (519) 966-0444
Cell: (519) 995-5620