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condo w/ no Deferred reserve plan

kfort

kfort

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Hi folks, I have a bit of a concern with a property I`m completing due diligence on.
I have studied the DRS and it looks reasonable with no major inputs scheduled for about five years. The first input expected is hvac followed by shingles ~3 years after that. The problem I encounter is that there is no deferred reserve plan...

The good (I think!!) news is that last year the Corp put 90k into the reserve fund as was suggested by the plan. The plan calls for this amount to be put in for the next ... 20 ish years. I`m happy to see they are following some suggestions but am concerned they have no separate plan. Realisticly if they follow the DRS to the letter, condo fees are going to go through the roof (note the pun).

Should I move forward? Great property, 3 blocks from an area where a new subdivision of 8,300 people is starting (sewer just laid and commercial property up for tender, lots for sale spring 2011). Just wondering why the heck there is no DRP?

Thoughts? Any/all are appreciated

Thanks!!
Kris
 
What province ?

What is DRS ? (I assume reserve fund study ??

What is DRP ? (I assume reserve fund) ?

Property manager usually keeps reserve fund separate from operating fund .. and usually it is shown on 2 different sections of the annual condo books.

The reserve fund study is usually done (at best) every 5 years .. or often even less than that.

Your question is unclear.
 
apologies.

the deferred reserve fund study was done in jan `07. One of the recommendations is a deferred reserve fund plan. I was under the impression that this is actually legally required? The newest books/budget (projected `10 and actual `09) have the reserve fund being built up by $89,000 each year as per the study. it was my impression that these studies are done generally by consultants who make absolutely sure they cover their hind end and are therefore exceptionally conservative. for example, this study suggests the condo corp should currently have 1.2 million in the reserve for future expenditures. I simply am trying to decide if the condo corp not having a written plan that is more realistic than the deferred reserve study is enough of a concern to stop my purchase.

and for some reason the agent only gave me AGM minutes from `06.... which did not impress me as i have no time machine. i was hoping for the last two AGM minutes.

the province of SK.
 
QUOTE (kfort @ Oct 28 2010, 05:29 PM) ..

and for some reason the agent only gave me AGM minutes from `06.... which did not impress me as i have no time machine. i was hoping for the last two AGM minutes.

the province of SK.
sounds fishy .. you MUST MUST have all up to the minute condo documentation to see if anything MAJOR is coming up .. as it is usually discussed and recorded .. say a new roof or a new "rain screen" .. or even a discussion on leaks or potential special assessments or major items .. potentially costing you ten`s of thousand of dollars per condo .. or much more sometimes on older buildings .. [I have heard of a 30+ year building in Vancouver with a special assessment of over $200,000 per condo for a major structural and exterior retrofit]

How old is this building ? How big is it ?

$1.2M sounds high .. but may be (too) low for a 200 suite condo complex that is 40 years old !
 
Thanks Mr. Beyer.

The building is 1982. I emailed MY Realtor and told him I need up to date AGM minutes from this august.

Currently there is 165k held in reserve. That is set to increase by 89,000 this year for sure but without the reserve plan by the condo board I have no idea if their intentions are to continue that, or cut it out, or up it or ... You get the idea. The corp is made up of 3 buildings each with 60 units for a total of 180 units. 99 parking stalls with 50 extra that can be rented.

I`m pressing hard for more info and will walk away without it. At the very least it will be a learning experience and I have found a much better insurance provider for my current revenue property while investigating my insurance options for this new property. I`ll update this as necessary and thank you for your response.

Kris
 
QUOTE (kfort @ Oct 28 2010, 09:14 PM) //

... 1982 ... Currently there is 165k held in reserve .. for a total of 180 units.
This is VERY VERY low ... less than $1000/condo !!

Thus, they will have to increase condo fees quite a bit or do a special assessment for a 28 year old building .. or likely: both !

This purchase may still make sense .. at a (much) reduced price !!
 
I was able to negotiate the price at $153,500 for the two bedroom unit. Rents in that location are $1,200 - $1,400 for executive class suites, of which this qualifies. I had budgeted rent at $1,200 and at worst case scenario it breaks even. That`s with double the current vacancy, double the current interest rate, 5% repairs (it is completely fresh reno), and 10% management fees. I believe it will cash flow reasonably well.

the 07 reserve study projected:

15 years for asphalt remaining
15 years for water supply system
15 sewer
12 intercom
20 electrical
10 plumbing
7 flooring ( 131,xxx estimated replacement cost)
8 for roofing ( 177,xxx replacement costs estimate)
And 7 for hvac which of I recall was estimated at 47,000
10 windows and doors (50,xxx) replacement costs estimate)
8 exterior walls ( 137,xxx)
10 balconies (130,xxx)


i was mistaken in my previous statement of 1.2 million for current reserve, it was estimated at $775,xxx to be currently adequate.

so it appears, if the study was accurate, and the board is following it as a schedule that i can expect at very minimum flooring, roofing, exterior walls (siding from what i can ascertain from the description) for the time i will hold this property (projected 10 years though if the sub division gets rolling quickly it COULD be less). and probably throw plumbing and windows in there.

too much?
 
QUOTE (kfort @ Oct 28 2010, 09:39 PM) I was able to negotiate the price at $153,500 for the two bedroom unit. Rents in that location are $1,200 - $1,400 for executive class suites, of which this qualifies. I had budgeted rent at $1,200 and at worst case scenario it breaks even. ..

too much?
hard to say. Rents seem high for a 2BR in SK .. and as such a MUCH higher vacancy needs to be budgeted for as you can buy a house for that monthly payment.

How high are the condo fees for a 2BR/month ? $450 .. or lower ?

cash-flow with how much down ? 20% ? 35% ? 50% ?

Rent: $1200

vacancy: 15% - net rent now $1020
management fee - 10% - now $925
condo fees: $425 - net rent now $500
interior repairs + in-suite insurance: $100
property taxes: $100
net rent $300

Mortgage for $100,000 @ 4% = $480/month (30 year amortization)

where is the cash flow here ?

NOT a great deal !

better usually to buy a small house where you control the costs (i.e. no condo fees) .. AND tenant pays utilities !
 
QUOTE (kfort @ Oct 28 2010, 10:14 PM) Thanks Mr. Beyer.

The building is 1982. I emailed MY Realtor and told him I need up to date AGM minutes from this august.

Currently there is 165k held in reserve. That is set to increase by 89,000 this year for sure but without the reserve plan by the condo board I have no idea if their intentions are to continue that, or cut it out, or up it or ... You get the idea. The corp is made up of 3 buildings each with 60 units for a total of 180 units. 99 parking stalls with 50 extra that can be rented.

I`m pressing hard for more info and will walk away without it. At the very least it will be a learning experience and I have found a much better insurance provider for my current revenue property while investigating my insurance options for this new property. I`ll update this as necessary and thank you for your response.

Kris

You should get ALL up to date condo documentation. Including the last AGM, minutes of the board of directors for the last 12 months, condo corp insurance certificate copy (for current year). An up to date reserve fund study and many other documents including an estoppel certificate from the condo manager dated as of the day prior to taking possession.

This documentaton should be listed on a schedule of your purchase offer and it should be stated as a condition to purchase. The condition should also state that you need the full documentation within 5 business days upon acceptance of the offer. Next you need a condition to provide you at least 5 business days upon receiving the condo docs to review them to your satisfaction.

If you have not been involved with condos and condominium boards, it is highly recommended to have the condo docs reviewed by a professional condo doc reviewer in your town (who knows already the issues of many complexes in your area). The reviewer should be able to asses the health of the condo corporation for you. This should not be seen as an abdication of your own due dilligence - you should review the docs yourself, especially the condo corp by-laws and ask clarification from your condo reviewer or if he/she cannot answer it from the condo manager or the board of directors.

Finally, unless you have already a multitude of units in the complex, have a home inspector go through the unit. Many consider this a waste of money but it is my experience that the inspector may help you identify many issues that may need your attention. A home (unit) inspection should be part of the conditions on your purchase contract and this should typically be dome within 5 business days of acceptance of the purchase offer.

MAKE sure you have this stuff taken care off - it is critical!

Hope this helps,
 
QUOTE (ThomasBeyer @ Oct 29 2010, 09:49 AM) How high are the condo fees for a 2BR/month ? $450 .. or lower ? - $224 currently.cash-flow with how much down ? 20% ? 35% ? 50% ? - 20%

Rent: $1200

vacancy: 15% - net rent now $1020 - current vacancy is 2.0%, expected to rise to 3.0% (average) according to CMHC

Mortgage for $100,000 @ 4% = $480/month (30 year amortization) - 35 year ammortization and locked in at 3.49%

better usually to buy a small house where you control the costs (i.e. no condo fees) .. AND tenant pays utilities ! - absolutely agreed, i looked at a handful with a detached garage. just never found one that wasn`t going to require a significant input very soon.



Couldn`t figure out how to change font colour so i bolded responses

1200 revenue


expenses:

(224) - condo fee
(25) insurance
(90) - taxes
(60) - repairs, i had this set at 5%
(60) vacancy - 5% again however i`ll heed your warning and up this. the thing is, my other property turns over sept 1st each year and i put it on kijiji for literally one day and get 40 calls, of which 5 generally qualify easily. it is currently rented to a journeyman carpenter/drywaller/electrician who makes more than me. 1 bedroom, 580 sq feet, and i get 985/month for it.
(495) mortgage on 120,000 @ 3.49 5 year locked in
(120) management
---------------------------
1074/month costs.

i plan to manage myself until it becomes too much pain. i know it will, so i have budgeted for it. currently in this town there are absolute dumps with "2" bedrooms renting for $1,000+. i have not yet encountered a problem finding qualified rentors (for the existing 1bd i have) and a lot of places around here are actually charging an absolute premium (it seems to me!) for anything with in suite laundry. there have been a lot of condo conversions the last 3 years or so. i am trying to use the influx of ~20,000 students in Sept to rent at the optimum time when demand out weighs supply. so far it has worked well.

thoughts?

This just in: monthly minutes are available and on the way. Realtor said he is covering that "cost" but I didn`t think there was a charge for that?

I have current insurance certificate, estopal, budget for `10, recap of budget for `09, AGM minutes for `06... i think that`s it. i`m at work right now and don`t ahve tghe papers with me.
 
QUOTE (gwasser @ Oct 29 2010, 11:14 AM) You should get ALL up to date condo documentation. Including the last AGM, minutes of the board of directors for the last 12 months, condo corp insurance certificate copy (for current year). An up to date reserve fund study and many other documents including an estoppel certificate from the condo manager dated as of the day prior to taking possession.

This documentaton should be listed on a schedule of your purchase offer and it should be stated as a condition to purchase. The condition should also state that you need the full documentation within 5 business days upon acceptance of the offer. Next you need a condition to provide you at least 5 business days upon receiving the condo docs to review them to your satisfaction.

If you have not been involved with condos and condominium boards, it is highly recommended to have the condo docs reviewed by a professional condo doc reviewer in your town (who knows already the issues of many complexes in your area). The reviewer should be able to asses the health of the condo corporation for you. This should not be seen as an abdication of your own due dilligence - you should review the docs yourself, especially the condo corp by-laws and ask clarification from your condo reviewer or if he/she cannot answer it from the condo manager or the board of directors.

Finally, unless you have already a multitude of units in the complex, have a home inspector go through the unit. Many consider this a waste of money but it is my experience that the inspector may help you identify many issues that may need your attention. A home (unit) inspection should be part of the conditions on your purchase contract and this should typically be dome within 5 business days of acceptance of the purchase offer.

MAKE sure you have this stuff taken care off - it is critical!

Hope this helps,


this does help! I appreciate your response. All of this is taken care of or else on the way currently. I made it clear to my agent prior to the offer that i required AGM minutes, monthly mins, etc etc and it just did not come. I get the impression the vendor`s agent is not used to people requiring this level of information. As of last night, my statement to my agent was I need all the requested materials or the deal goes away and I keep shopping.

The one thing I did waffle on however was the property inspection. My reasoning was that I have been serching for a property inspector with more experience than a weekend course (like a background as a tradesperson or contractor) and have yet to find one here. On my principle residence, I am virtually positive that I knew more about construction than the inspector. ... I was actually embarassed for him. I was green, and it was my fault for not asking the right questions prior.
 
QUOTE (kfort @ Oct 29 2010, 12:10 PM) This just in: monthly minutes are available and on the way. Realtor said he is covering that "cost" but I didn`t think there was a charge for that?

In my experience, condo boards do charge for the service of printing and providing this information. However, (at least in Calgary) the standard condo document inspection condition states that the seller is responsible for providing this information at their expense. You should look at your offer and see what it says.

I have also bought foreclosures, where the selling bank/lawyer have crossed out those terms in the offer, and I had to secure the condo docs at my own expense.

Michael
 
QUOTE (kfort @ Oct 29 2010, 12:32 PM) this does help! I appreciate your response. All of this is taken care of or else on the way currently. I made it clear to my agent prior to the offer that i required AGM minutes, monthly mins, etc etc and it just did not come. I get the impression the vendor`s agent is not used to people requiring this level of information. As of last night, my statement to my agent was I need all the requested materials or the deal goes away and I keep shopping.

The one thing I did waffle on however was the property inspection. My reasoning was that I have been serching for a property inspector with more experience than a weekend course (like a background as a tradesperson or contractor) and have yet to find one here. On my principle residence, I am virtually positive that I knew more about construction than the inspector. ... I was actually embarassed for him. I was green, and it was my fault for not asking the right questions prior.


Your Realtor should be able to provide you with some names of experienced property inspectors. That is part of his job - it may become an issue in a small community though.

Also, regarding your condo fees. Check what they are comprised of. Does it include any utilities such as heating, water, sewer. Some condofees include a large portion of your utilities - in one place I own it even includes Cable TV and internet.
 
QUOTE (gwasser @ Oct 29 2010, 12:48 PM) Your Realtor should be able to provide you with some names of experienced property inspectors. That is part of his job - it may become an issue in a small community though.

Also, regarding your condo fees. Check what they are comprised of. Does it include any utilities such as heating, water, sewer. Some condofees include a large portion of your utilities - in one place I own it even includes Cable TV and internet.


condo fees include heat/water (boiler system provides heat as in my current rental property).

they break down roughly to $175 for operational costs and $50 for reserve fund contribution
 
QUOTE (kfort @ Oct 29 2010, 11:10 AM) ..
(224) - condo fee..
$985 for a small 1BR .. wow !!

seems you`ve got it covered ..

I assume this is Regina or Saskatoon.

Condo fees of $224 is VERY VERY VERY LOW for a 2 BR if it includes utilities like gas, cold water, hot water, sewage and garbage collection .. and must go up for the building to be kept in satisfactory condition !
 
QUOTE (ThomasBeyer @ Oct 29 2010, 01:03 PM) Condo fees of $224 is VERY VERY VERY LOW for a 2 BR if it includes utilities like gas, cold water, hot water, sewage and garbage collection .. and must go up for the building to be kept in satisfactory condition !

I have to second this. When evaluating I would budget for an eventual increase of the fees to $350-$400 per month. Likely on the higher side if the reserve fund is low, as seems to be the case in this building. Unless you can think of a tangible reason why they would be much lower in this building than other places?

Michael
 
QUOTE (bizaro86 @ Oct 29 2010, 01:23 PM) I have to second this. When evaluating I would budget for an eventual increase of the fees to $350-$400 per month. Likely on the higher side if the reserve fund is low, as seems to be the case in this building. Unless you can think of a tangible reason why they would be much lower in this building than other places?
Michael

the only thing i can come up with to contradict that is that the reserve study noted a large deficiency and called for 89k per year for the next ~20 years to eliminate that defficiency. 180 units x $500/unit/year (say $50 per month) = ~ $89,000. Actual opperating costs worked out to ~175 per unit to cover everything the last 2 years. Obviously inflation will hit all sectors of this so if that is ~ 4% these need to go up by the same amount to not run a deficit. There are quite a few buildings that have costs fairly close to this range around here. Generally the ones with elevators are much higher. But the walk ups seem to range from 200 - 300 in general (the ones ive looked at).

currently, it is very difficult to find a 2 bedroom for less than 1100. decent 2 bedrooms are more than that. renovated/new 2 bedrooms are more still. Rents are high enough/ vacancies low enough that i have had single mothers with 2 kids inquire about my one bedroom unit...

my plan is to wait until i see the reserve Plan, if there even is one. I`m not too keen on the upcoming expenditures required/suggested by the reserve study. I do believe the property will appreciate, it`s in the right area for that. but that also assumes upkeep is appropriate.
 
QUOTE (kfort @ Oct 29 2010, 03:01 PM) the only thing i can come up with to contradict that is that the reserve study noted a large deficiency and called for 89k per year for the next ~20 years to eliminate that defficiency. 180 units x $500/unit/year (say $50 per month) = ~ $89,000. Actual opperating costs worked out to ~175 per unit to cover everything the last 2 years. Obviously inflation will hit all sectors of this so if that is ~ 4% these need to go up by the same amount to not run a deficit. There are quite a few buildings that have costs fairly close to this range around here. Generally the ones with elevators are much higher. But the walk ups seem to range from 200 - 300 in general (the ones ive looked at).
currently, it is very difficult to find a 2 bedroom for less than 1100. decent 2 bedrooms are more than that. renovated/new 2 bedrooms are more still. Rents are high enough/ vacancies low enough that i have had single mothers with 2 kids inquire about my one bedroom unit...

my plan is to wait until i see the reserve Plan, if there even is one. I`m not too keen on the upcoming expenditures required/suggested by the reserve study. I do believe the property will appreciate, it`s in the right area for that. but that also assumes upkeep is appropriate.



Many condo complexes with 2 bedroom low rise apartments build in the 1980s have condo fees in the 250 - 325 range that include heating, water and sewage. Your complex may be a bit low ($50 reserve fund could be closer to $75 per unit per month) but it looks like to fall in the normal range.

Focus on the reserve fund balance as compared to the plan`s supposed balance and check potential upcoming maintenance/replacement projects to be funded within the next 4 to 5 years. If in your opinion the costs of this is covered you should be ok. But.... as said before, have a professional condo reviewer familiar with your area review it rather than doing it all by yourself. Yeah it costs $300 - $400 bucks for the review but when buying a condo you want to know the complex as well as possible - what is $300 versus a major repair or special assesment? For example, did you check the by-laws about rental or occupant restrictions or special levvies? What about pets?
 
QUOTE (kfort @ Oct 29 2010, 11:52 AM) condo fees include heat/water (boiler system provides heat as in my current rental property).

they break down roughly to $175 for operational costs and $50 for reserve fund contribution
this is very low for a 2 BR .. and leaves little to none to property upgrades .. thus: much deferred maintenance !!
 
QUOTE (gwasser @ Oct 29 2010, 05:38 PM) Many condo complexes with 2 bedroom low rise apartments build in the 1980s have condo fees in the 250 - 325 range that include heating, water and sewage. ..
indeed .. and many are poorly maintained ..
 
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