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Shooting the breeze on condo fees

When making the decision to purchase a condominium vs a freehold property, I often feel that Buyers have the tendency to under-analyze condo fees.  From what they include, to how they’re managed, to their impact on affordability, condo fees can bite you in the rear end if you don’t do your research.

Let’s begin by getting on the same page of what a condominium is by definition.  Condominiums, or “condos” for short, is a term that has been all too popularized by the visualization of a swanky, modern, open-concept unit in a high-rise apartment building.  While these are indeed condominiums, we often overlook what being a condo is in the true sense of the word. 

In real estate, being a condominium property has less to do with the type of dwelling that it is than the type of ownership.  Unlike freehold properties where owners have a permanent and absolute tenure of the property, condominium properties are registered under a condominium corporation with a Board of Directors who make decisions about the property for the development as a whole.  Therefore, even though you technically own the unit and can sell it at any time you please, items like major alterations to the unit require approval by the condo committee before undertaking said plans.  Furthermore, decisions can be made by the condo board, such as increasing the services provided to occupants of the building, which can frequently result in higher condo fees.  Generally, these types of decisions are voted on and the majority rules.  If you happen to be in the minority, then you’re simply out of luck.

The common misconception is that only apartment units can be condos when in actuality any type of dwelling can be a condo if registered in such a fashion by the builder.  Condos in Guelph are becoming increasingly common and we definitely see a full range of dwelling types for Guelph condo properties throughout the city.  All apartment buildings within Guelph are condominiums because the amenities and common areas within the building, as well as parking (whether surface or underground) need to be maintained as a whole.  A great example of this is the Metalworks development downtown on the river!  The second largest percentage of condos within Guelph and most cities for that matter are townhouses.  We see a lot of condo townhouses in the South end of Guelph especially.  Freehold townhouses can be found in greater abundance in older developments in the West end and newer builds in the East end of Guelph, such as Curzon Crescent.  Semi-detached properties tend to be mainly freehold, but the odd condo semi does exist out there.  Detached condominium properties are by far the rarest example of condos, but believe it or not, they do also exist within Guelph.  Manor Park Crescent has luxury detached condominium properties (2,500 sq. ft. range) in the 800’s with a hefty condo fee on top!

Now that we understand a little more about what makes a condo, well…a condo, let’s dive a little further into the fees themselves.  One thing to remember is that all condo fees are not created equally!  This is why it’s so important to work with a knowledgeable realtor who can not only help you navigate finding properties, as well as negotiating price and terms but also one who understands the subtleties of each property – from what the condo fees include, how well the building is actually managed, noise levels between units, average demographic of its occupants, etc. 

Common items included in a condo fee are: exterior maintenance (often doesn’t include roof & windows in certain property types), parking (snow ploughing, maintenance of asphalt, servicing garage doors if underground), private garbage removal, some utilities (water is almost always included in apartment buildings), building insurance (you still require insurance for the interior of your unit/contents, but this saves you money overall), and maintenance of common areas (foyer, gym, public washrooms, etc.).  One thing you will notice is that new condo apartment developments rarely have a pool in them anymore.  The reason being: maintaining a pool is very costly, and thus, will be reflected in the condo fees.  So if you’re considering a building with a pool, be prepared to pay at least $200/month more in condo fees for this amenity!

Price and inclusions aside, always do some research on the condo corporation and the property management company.  A low condo fee can sometimes be a signal of a poorly managed building, so it’s not all about what’s included at what price, but rather, how the building is managed as a whole.  Have your realtor find out who the property management company is and they can fill you in on their reputation, as chances are they likely manage other developments within Guelph too.  Similarly, verify that the condo corp will allow you to live your life the way you want to live it within the building.  If you have pets or plan on getting some, make sure that they are permitted.  If they are permitted, don’t just stop there, read the fine print!  Most condo apartments will have size, number, and even breed restrictions when it comes to pets.

Finally, when working with buyers, I find that the most overlooked component of condo fees is their impact on affordability.  When buying freehold, the cost analysis is more straightforward since Buyers are pre-approved solely for a specific purchase price, and therefore, become more fixated on the final sale price than the overall monthly cost.  For this reason, I tend to see buyers who begin looking at condos as an alternative, thinking that they’ll be saving money by looking at a 475k apartment unit with a $500/month condo fee vs a 500k freehold townhouse.  We don’t want to overlook some of the value embedded in the condo fee, however, the opposite couldn’t be more true. 

To understand the true impact of any given condo fee on affordability, we have to transform the condo fee into a fixed value that translates a monthly cost into a concrete measure of affordability or purchasing power.  This calculation will depend on several factors such as the amortization period and current interest rates.  For simplicity though, at current interest rates and an average 25-year amortization period, for every 100k that you mortgage on a property, it will cost you about $500/month to service that debt.  If we break it down even further into a more workable size, every $100/month that you spend on a mortgage equals approximately 20k in purchasing power.  By undertaking this exercise the true cost of condo fees become much more evident.  We can see that even if two Guelph condos are priced exactly the same if one has a $250/month fee and the other is $450/month, that’s like paying an extra 40k for the second property!  Similarly, going back to my original example of thinking you’re saving money by purchasing a 475k condo with a $500/month fee vs a 500k freehold property, the cost discrepancy should now become brutally clear.  The $500/month condo fee will represent about 100k in mortgage commitment, so even though the purchase price is 25k less on the condo unit, you actually came out 75k behind.  Again, don’t forget to add some value back for the services included in the condo fee, but they aren’t worth anywhere near 75k!

I hope this will not only help you evaluate the true cost of freehold vs condo properties but also properly compare the relative values from one condo to the next.  If you’re looking to purchase a condo in the Guelph & surrounding areas and feel that you could benefit from some professional guidance, don’t hesitate to reach out (519-829-0426 or jmelichercik@trilliumwest.com)!

At TrilliumWest, we’re always talking real estate.

Until next time!