[Berubeland]

I have been a property manager for the last 10 years or so and in that time I have seen my share of crazy things.

I hate condo's as investments here are my reasons why.

First and foremost the Board of Directors who actually make the decisions about the condo and how the money is spent have no training except for the ability to sign a offer of purchase and sale for a unit in the building. They have no idea and no ability to manage the finances of a multimillion corporation. They have the time and willingness to volunteer.

Property managers who manage the building are generally paid according to a percentage of the gross operating expenses/budget. This is really bad because if your expenses go down so does their pay. Do you understand why your management fees always go up?

People generally do not understand that by buying a condo they are buying into the liability of the whole building. So when they find oil seeping through the parking garage wall.... you own a piece of that. By owning it that means you get to pay a special levy of $$$$

Developers know when they are building this thing that in a few years time they are out the door, they turn the building over to the shiny new board members. Consequently they build for 2-3 years after that it's the condo unit's owner's problem. So when they can buy the higher grade/thickness copper pipes they don't. In apartment buildings it is common to have the pipes last over 25 years before replacing. In condos I have worked in buildings 8 years old were needing all pipes replaced. And so on and so forth.

Special levies deserve their own whole rant ... they are bad. If your property manager loses your reserve fund and themselves in a Carribean country. You will pay this. If your board makes wrong decisions and doesn't spend the money properly you will pay this. Special levies are thousands of dollars on top of the regular maintenance fee. Condo's seem to be perfect for seniors but between rising maintenance fees and special levies it is too unpredictable for someone on a fixed income. And whenever a special levy gets assessed people have to sell and because there's a special levy the prices on the place go down. It's the same with maintenance fees when they go up the price of the condo goes down.

So to sum it up.

You can't rent them and get positive cash flow.

Maintenance fees go up all the time.

Management fees go up all the time.

You are liable for everything and have control of nothing.

Poor construction adding to costs

Condo boards having no experience, training, expertise, or clue about how to run a building.

Poor customer service - addiction to rules.

Special levy

What led to this diatribe? I manage three one bedroom condo's the maintenance fees just went up $100 per unit for no reason at all. Before he was breaking even now he's not. That really sucks.

 

[Rickson9]

What led to this diatribe? I manage three one bedroom condo's the maintenance fees just went up $100 per unit for no reason at all. Before he was breaking even now he's not. That really sucks.

At what price would the 1 bedroom condos make a profit?

From my calculations the condos would have to be pretty cheap. A lot cheaper than they're priced at right now anyway.

 

[Berubeland]

He bought preconstruction for between 160K to 195K with a 25% down I believe.

Currently the units are selling for $225 K so he made a profit already

Rents are $1200 there. Not sure what the maintenance fees are just that they went up.

I just hate the nasty surprises.

 

[Rickson9]

He bought preconstruction for between 160K to 195K with a 25% down I believe.

Currently the units are selling for $225 K so he made a profit already

Rents are $1200 there. Not sure what the maintenance fees are just that they went up.

I just hate the nasty surprises.

Good info. So if a condo was bought for $160,000 with 25% down this means $40,000 down and a mortgage of $120,000.

Assuming a 2.59% variable rate mortgage, 5 yr term, bi-weekly payments, 25 yr amort the mortgage payments come out to $550 p mo.

Further assuming property taxes of $200 p mo and maintenance fee of $300 p mo the total monthly fixed costs are at least $1050 p mo.

The $160,000 condo should be profitable under those conditions. The $195,000 would also be profitable under those conditions albiet with a slimmer profit margin (approx $50 p mo).

PS: You could add in other expenses of course which would make it more difficult to reach profitability, but I think this short-hand calculation is effective to see how much money a condo owner would be working with.

For example I am very conservative and would like the numbers to work with a 10 year term fixed rate mortgage (say for 6%). This would boost the monthly mortgage expense to $770 p mo. This would require me to demand a far lower buy price (which I probably wouldn't be able to find).

 

[Spidey]

I basically agree with your assessment Berubeland.

I find that condo owners have far less rights than most people who rent an apartment.

The council seems to have far too much power to impose restrictive rules. We've previously owned accommodation where councils have driven owners crazy with rules on everything from the colour of window coverings, to whether you can rent your unit to how many guests you can have over. They basically seemed to gather the rules from every other condo and implemented every single one of them.

Then you usually get a group of people intent on making maximum payments to the contingency fund. They seem to consider this "money in the bank". While I agree that a certain amount should be placed in contingency I think to unnecessarily max it out is pure foolishness. It's not "money in the bank" if you sell. In that case your money has vanished. I would rather have the use of that money, even if it meant a special levy for a repair. I've even seen condo councils want to implement a special levy for repairs when the available money was sitting in the contingency fund. Isn't that what the contingency fund was for?

I think there are still some cases where condo ownership could make sense but I would advise prospective purchasers to read through a couple of years of minutes and avoid any that seem overly restrictive, overly regulated or those with too much of an air of animosity amongst owners and council.

 

[Berubeland]

Probably my least favourite thing about condo's is that the property management contracts are designed to increase costs. This why prices on maintenance fees go up and up and up.

The management contract is based on a % of the gross operating budget/expenses. So if a management company went in there and saved $100000 they would be cutting their own pay for their work. Not too many people will do that.

 

[NorthernAlex]

At what price would the 1 bedroom condos make a profit?

From my calculations the condos would have to be pretty cheap. A lot cheaper than they're priced at right now anyway.

Rickson9, I try to calculate rule of thumb: 1% or purchase price = 1 month rent.

I know it is very aggressive, but works most of the time. If I don't follow this rule I need a good reason (new infrastructure coming in 5-10 years, like new hospital).

Won't work with Condos in the GTA anymore as the price is far and gone of interesting. GTA condos are anyway overpriced and I am sure that there will be a major pull back (even with a good economy).

Berubeland is totally right with his post. I know of condos, where the condo strata was changed that rentals are not allowed.... aso.

@Berubeland: When did he buy these condos between $160k - $190k and now value $225k?

 

[Berubeland]

He bought them preconstruction about three-four years ago. It is a great location at Sherway Gardens. There you are not allowed to own more than one condo per building. They rented like hotcakes too which was very nice for me.

Actually there might be some really great deals coming up in preconstruction sales to investors these days. Sales are slow, financing is hard to come by, you might be able to negotiate some steals. Builders can't build until a certain percentage of units are sold. They don't get paid and can't start until they get financing... I think that if you had the dough and the patience you might have a significant negotiating advantage.

You'd have to set your price and see what happened.

 

[Rickson9]

Won't work with Condos in the GTA anymore as the price is far and gone of interesting. GTA condos are anyway overpriced and I am sure that there will be a major pull back (even with a good economy).

I really hope so!

Berubeland is totally right with his post. I know of condos, where the condo strata was changed that rentals are not allowed.... aso.

Ouch.

 

[Jon202]

When I was on the board of directors for a small condo corp our management fee was fixed annually regardless of budget size. The relation between manager, board and owners was amicable.

 

[stinsont]

Do the condo boards negotiate the cable/internet etc with Rogers? I heard that Rogers has exclusive access to the condo's for cable tv service in Toronto; is this true?

 

[canadianbanks]

Won't work with Condos in the GTA anymore as the price is far and gone of interesting. GTA condos are anyway overpriced and I am sure that there will be a major pull back (even with a good economy).

Are you implying that the rest of the residential real estate in GTA is fairly priced?

 

[Rickson9]

Are you implying that the rest of the residential real estate in GTA is fairly priced?

I don't think that's what he's implying, but I really don't know.

 

[Berubeland]

It depends on the condo. Some negotiate a deal some don't. Historically in rental building these were very lucrative contracts for exclusivity. The premise was that Roger's was leasing the space where the wires ran. Then Rogers stopped being so generous.

Real Estate in Toronto is generally overpriced but there are still opportunities out there. Looking for these deals is like looking for a needle in a haystack. Just because they are hard to find doesn't mean they aren't there.

I found a really nice deal about a month ago but no one i knew wanted to take advantage of it. It had everything I liked for a good investment but you know it's hard to see sometimes for most people.

 

[Rickson9]

I found a really nice deal about a month ago but no one i knew wanted to take advantage of it. It had everything I liked for a good investment but you know it's hard to see sometimes for most people.

Please contact me if you find another.

 

[stinsont]

Please contact me if you find another.

me too.

 

[Berubeland]

To add insult to injury

A friend of mine, a senior on a fixed income, just bought a condo in an old building by the lake and is selling her house with a basement apartment.

She bought the first place she saw.

It just scares me how many people don't realize what they are buying. They just do not understand that as well as the apartment they are buying a share of the liability of the entire building, building envelope, common areas, parking garage, roof, mechanical systems and so much more.

 

[Rickson9]

A friend of mine, a senior on a fixed income, just bought a condo in an old building by the lake and is selling her house with a basement apartment.

She bought the first place she saw.

It just scares me how many people don't realize what they are buying. They just do not understand that as well as the apartment they are buying a share of the liability of the entire building, building envelope, common areas, parking garage, roof, mechanical systems and so much more.

We know a couple who have leveraged every penny. They own a primary residence, a condo, and two multi-unit apartments (probably 10 units in total). I feel that their actions are too risky for my blood.

We know another couple who are more savvy at RE investing (only 35 years old) and recently sold their 12-unit apartment for $1M (purchased for $420K) and their primary residence for about $650K (don't know their purchase price) and upgraded to a new larger primary residence for $800K ($90K less than list). They are pouring in another $130K to create an infinity pool and hot tub in their new backyard (the home is approximately 4500 sq ft on a 100'x200' lot).

Now they own a primary residence and one 10-unit apartment (purchased for $490K). They are considering selling the 10-unit because buyers are rabid over it (they have held it for a little more than a year and would likely sell for a quarter mil profit). They hold $500K in cash. They want to gut and rebuild 2 of the units in the 10-unit apartment (it used to be an 8 unit apartment with 2 commercial spots; they went to the city and had it rezoned for 10-unit residential).

They consider RE prices to be unsustainable and figure that they could always buy back in later if RE prices drop. If RE prices don't drop for awhile, they will find something else to do with the cash.

 

[Cal]

In theory I just couldn't own a condo for sake of the condo fee. On a house...I could do the maintenance myself, no fee.

 

[Kinny]

I have been a property manager for the last 10 years or so and in that time I have seen my share of crazy things.

I hate condo's as investments here are my reasons why.

First and foremost the Board of Directors who actually make the decisions about the condo and how the money is spent have no training except for the ability to sign a offer of purchase and sale for a unit in the building. They have no idea and no ability to manage the finances of a multimillion corporation. They have the time and willingness to volunteer.

Property managers who manage the building are generally paid according to a percentage of the gross operating expenses/budget. This is really bad because if your expenses go down so does their pay. Do you understand why your management fees always go up?

People generally do not understand that by buying a condo they are buying into the liability of the whole building. So when they find oil seeping through the parking garage wall.... you own a piece of that. By owning it that means you get to pay a special levy of $$$$

Developers know when they are building this thing that in a few years time they are out the door, they turn the building over to the shiny new board members. Consequently they build for 2-3 years after that it's the condo unit's owner's problem. So when they can buy the higher grade/thickness copper pipes they don't. In apartment buildings it is common to have the pipes last over 25 years before replacing. In condos I have worked in buildings 8 years old were needing all pipes replaced. And so on and so forth.

Special levies deserve their own whole rant ... they are bad. If your property manager loses your reserve fund and themselves in a Carribean country. You will pay this. If your board makes wrong decisions and doesn't spend the money properly you will pay this. Special levies are thousands of dollars on top of the regular maintenance fee. Condo's seem to be perfect for seniors but between rising maintenance fees and special levies it is too unpredictable for someone on a fixed income. And whenever a special levy gets assessed people have to sell and because there's a special levy the prices on the place go down. It's the same with maintenance fees when they go up the price of the condo goes down.

So to sum it up.

You can't rent them and get positive cash flow.

Maintenance fees go up all the time.

Management fees go up all the time.

You are liable for everything and have control of nothing.

Poor construction adding to costs

Condo boards having no experience, training, expertise, or clue about how to run a building.

Poor customer service - addiction to rules.

Special levy

What led to this diatribe? I manage three one bedroom condo's the maintenance fees just went up $100 per unit for no reason at all. Before he was breaking even now he's not. That really sucks.

Just a thought here...

If you were to buy a condo as a second investment...can't you divert all the "extra" expenses to your tenants? what I'm trying to get to is:

Buy a condo unit during pre-sale. Rent it out for 3-5 years. Sell it. Over time, you wouldn't have lost any money, because all management/property increase in fees would be paid by your tenant. And from appreciation, it would be a good 20%+ investment...(of course, it the ROI may not be as good as investing in a home/townhouse).