Hi, am analyzing condos/townhouses...do I just pass on properties with high maintenance fees or are they justified in some cases? I don`t like seeing fees that are around $300 or more but do some condos include more basic stuff (i.e., util.?) in these fees than others to justify such levels?
Condo maintenance fees
- Thread starter donksky
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RussellWestcott
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I guess the simple answer to this one is... it depends.
When you factor in the higher Condo fees into the cash flow analyzer what does the bottom line cash flow number tell you? As well, if your Condo fees include utilities, typically you can charge more rent for these units, as you tenant will not have to pay for their own utilities.
Another thing to look into if the condo fees are high... what exactly is the money going towards? Management, maintenance, reserve fund to install new windows, paint, roof? etc. It is not a bad thing if your condo fees are going toward improving the property... but balance this against the cash flows.
On the other hand, I am also wary of properties that have too low of Condo fees, because they may be underfunding the reserve fund, and you may be in for a special assessment in the future
This where the Condo Due Diligence checklist becomes very valuable. Dig into the papers you get from your condo due diligence, talk to some of the board members, and get to the bottom of whats going on.
The bottom line is Condo fees are an expense, and what does the numbers do to your cash flows when you plug these expenses into your analysis?
Cheers
When you factor in the higher Condo fees into the cash flow analyzer what does the bottom line cash flow number tell you? As well, if your Condo fees include utilities, typically you can charge more rent for these units, as you tenant will not have to pay for their own utilities.
Another thing to look into if the condo fees are high... what exactly is the money going towards? Management, maintenance, reserve fund to install new windows, paint, roof? etc. It is not a bad thing if your condo fees are going toward improving the property... but balance this against the cash flows.
On the other hand, I am also wary of properties that have too low of Condo fees, because they may be underfunding the reserve fund, and you may be in for a special assessment in the future
This where the Condo Due Diligence checklist becomes very valuable. Dig into the papers you get from your condo due diligence, talk to some of the board members, and get to the bottom of whats going on.
The bottom line is Condo fees are an expense, and what does the numbers do to your cash flows when you plug these expenses into your analysis?
Cheers
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Is there any rule/regulation to pay Condo Fee in an year advance by Post Dated Cheques in AB? If not , then how many months (max) are being paid by post dated cheques?
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RussellWestcott
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[quote user=OurRealtor]Is there any rule/regulation to pay Condo Fee in an year advance by Post Dated Cheques in AB? If not , then how many months (max) are being paid by post dated cheques?
Not sure if there are any rules/ regulations... its a matter of how the Condo board is set up to take the payment.
Every Condo that I own we pay the fees on a monthly basis. 90% of them are Pre-authorized Payment (PAP) on the 1st and 10% of them I have to write 12- posted dated every January to cover the year. I prefer to have PAP, but 12 posted chq's is no big deal either.
Hope that helps
Not sure if there are any rules/ regulations... its a matter of how the Condo board is set up to take the payment.
Every Condo that I own we pay the fees on a monthly basis. 90% of them are Pre-authorized Payment (PAP) on the 1st and 10% of them I have to write 12- posted dated every January to cover the year. I prefer to have PAP, but 12 posted chq's is no big deal either.
Hope that helps
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Russell covered the meat and potatoes when it comes to buying condos and evaluating the condo fee. I
can't expand on it much but I do have a few thoughts.
1. When you are buying a detached property with no management company in place you are buying an asset plain and simple. When you are buying a condo with a management board you are buying an asset AND a business. The condominium management company has a report card (condo docs) that you must evaluate before making a purchase. Evaluating the property risk is usually easier with condos but the added wrinkle of the management company evens it out with detached properties.
2. High fees hurt cash flow but often reduce the risk of special assessments to address deferred maintenance. If you are buying in a 100 unit building and there is a 500,000 reserve fund well you have a built in $5000 reserve allotted to your unit.
3. Old buildings usually have higher fees but they also have more of a track record. So if it's a 30 year old building with a good reserve and no issues reported in the condo docs you have better confidence going forward than a 1 year old building with no track record.
4. Most of the fees you will be paying are for day to day operating costs borne by whoever is living there. As in utilities expenses, R&M and keeping the property clean. These are the ones that will tell you if the building is being operated correctly. Look at the total condo fee and back out the reserve fund contributions. The number that's left is the operating expense. Ask yourself if this is reasonable.
can't expand on it much but I do have a few thoughts.
1. When you are buying a detached property with no management company in place you are buying an asset plain and simple. When you are buying a condo with a management board you are buying an asset AND a business. The condominium management company has a report card (condo docs) that you must evaluate before making a purchase. Evaluating the property risk is usually easier with condos but the added wrinkle of the management company evens it out with detached properties.
2. High fees hurt cash flow but often reduce the risk of special assessments to address deferred maintenance. If you are buying in a 100 unit building and there is a 500,000 reserve fund well you have a built in $5000 reserve allotted to your unit.
3. Old buildings usually have higher fees but they also have more of a track record. So if it's a 30 year old building with a good reserve and no issues reported in the condo docs you have better confidence going forward than a 1 year old building with no track record.
4. Most of the fees you will be paying are for day to day operating costs borne by whoever is living there. As in utilities expenses, R&M and keeping the property clean. These are the ones that will tell you if the building is being operated correctly. Look at the total condo fee and back out the reserve fund contributions. The number that's left is the operating expense. Ask yourself if this is reasonable.
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Brett makes (as always) a number of excellent points. Ultimately, the condo fees are a major expense item, and so they have to go into your analysis. If the investment works for you with high condo fees, then it works, if not, then don't buy it.
I would also be wary of places with condo fees that are lower than you're seeing as the average in the area for similar types of buildings. Sometimes there's a good reason for that (ie no utilities included whereas the comparables do include utilities). On the other hand, one unit I did some due diligence on had a condo fees ~$100 lower than I would have expected based on the size of the unit/age of the building, which made it look like a more attractive investment on first blush. When I got a copy of the condo docs, it turned out that they weren't spending any money on maintenance or reserves, which is what was keeping the condo fees so low. That building is therefore a huge special assessment waiting to happen, because eventually the deferred maintenance will catch up to them. Instead of being willing to pay a premium for low condo fees in that case, I chose to apply a discount for a future assessment in my analysis, which mean the numbers no longer worked.
Regards,
Michael
I would also be wary of places with condo fees that are lower than you're seeing as the average in the area for similar types of buildings. Sometimes there's a good reason for that (ie no utilities included whereas the comparables do include utilities). On the other hand, one unit I did some due diligence on had a condo fees ~$100 lower than I would have expected based on the size of the unit/age of the building, which made it look like a more attractive investment on first blush. When I got a copy of the condo docs, it turned out that they weren't spending any money on maintenance or reserves, which is what was keeping the condo fees so low. That building is therefore a huge special assessment waiting to happen, because eventually the deferred maintenance will catch up to them. Instead of being willing to pay a premium for low condo fees in that case, I chose to apply a discount for a future assessment in my analysis, which mean the numbers no longer worked.
Regards,
Michael