Cayo: Buying a strata property takes extra care

Many first-time condo buyers rationalize a potential purchase something like this:

“I’m paying $1,200 a month in rent,” they say. “The mortgage on a sweet little place of my own will be $1,000 a month. So I’ll be saving $200.

“Right?”

“Wrong,” says Scott Hannah, the Vancouver-based president of the non-profit Credit Counselling Society, who has heard this kind of flawed reasoning more times than he cares to count.

It’s not just the several hundred dollars a month for strata fees and property taxes that some would-be buyers leave out of this simplistic equation.

Other elements to be considered, Hannah says, can be as simple as parking and storage space: are they included, or will they cost extra? Other additional costs can be as predictable and essential as insurance premiums. They can be as unpredictable and scary as strata fees that may rise abruptly after you’ve signed on the dotted line, or sudden special assessments that can run into thousands or tens of thousands of dollars for unplanned and unavoidable maintenance or repairs.

“There’s even the question of what you’re going to put inside a new place of your own,” Hannah says. “People rush to buy a place, then have no money left to furnish it, except by buying on credit.

“So it’s not only whether you can afford the mortgage payment, it’s how much do you owe besides that?”

Not that it’s always easy to figure out what those other costs may total.

A thorough perusal of at least a couple of years worth of strata minutes and financial statements may give you a hint on some important issues, but it may not.

Tony Gioventu, the executive director of the Condominium Home Owners Association of B.C., concedes some strata councils try to minimize references in the minutes to anything a potential buyer may considered to be a negative.

He urges both a careful walk-around in common areas, and specific questions on about the condition of and maintenance plans, if any, for common areas from the roof to the exterior walls and balconies to the parking garage and everything in between. Asking about pending or not fully resolved law suits or human rights complaints that could leave even a new owner on the hook for substantial settlements is also a good plan.

Gioventu says plenty of information about how well or poorly a property is managed can also be gleaned from an examination of a strata’s insurance policies. A high deductible — one in the tens of thousands or even hundreds of thousands — may be a sign the building has had trouble before. It should, at the least, raise questions, although there might be a reasonable explanation such as, for example, a longtime problem that has finally been properly fixed.

Even something that looks like a plus — comfortably low strata fees — might indicate quite the opposite. It could be, Hannah said, this indicates you’d be casting your lot with a group of owners who are unwilling or unable to invest enough through monthly fees to keep the property in good stead. Thus it could mean bad news: a building that is losing value, and/or a large special assessment in the offing when work simply can’t be put off any longer.

If all this sounds daunting, what should prove to be a much better information source is in the offing, Gioventu said. New provincial legislation requires all stratas of more than four units — townhouse developments and even bare-land developments, as well as condos — to either prepare depreciation reports or annually obtain a three-quarters vote of owners to exempt themselves.

A depreciation report, he said, is akin to a business plan. It makes an inventory of common assets and assesses the condition of each component. It also estimates how soon repair, renewal or replacement will be needed, and it sets options to pay for the work.

Some stratas may already have such plans, he said, although the legislation allows some time for them to be prepared so it could be two or three years before they’re widely available.

These, too, may uncover an unwelcome surprise for some unwary buyers.

Most stratas, Gioventu said, are building their contingency accounts too slowly to cover the predictable maintenance they’ll be facing. The average contribution, he said, is $22 a month, but it probably should be in the range of $80-$120.

“So a substantial increase in fees for many strata owners is not out of the question.”

Hannah has one final warning for people who’ve stretched their financial resources too thin to leave them much capacity to cope with an interest-rate rise or significant emergency spending. Such owners, including investors who’ve put every penny into what they hope will be an income-generating property, sometimes think they can simply sell and move on if push comes to shove.

However, strata properties, he said, aren’t always as easy to sell as quickly as single-family dwellings, especially when they’re no longer new and shiny.

“So people can and do run into cash-flow problems,” he says. “And there may not be an easy way out.”