As the baby-boomer generation nears retirement age, many are weighing the option of selling the family home and buying a condo. Some boomers are reaching a time in their lives where the normal maintenance of a house may become more of an unwanted burden and many are opting to spend winters in the south while keeping a pied-a-terre in the Montreal area. There are many advantages to buying a condo instead of a house, both for boomers as well as first-time buyers and busy career-minded singles and couples.
But there are some serious issues to consider when buying a condo vs buying a house that can have a big impact on your finances and lifestyle.
Condos offer many benefits; a more maintenance-free lifestyle, the ability to lock the door, take a vacation and not have to worry about who is removing the snow, cutting the grass or ensuring the home is safe a looked after, is unique to condo ownership. For busy singles and couples, with demanding careers, condos which are often in more convenient, central locations and closer to work, offer the benefits of ownership without the time-consuming work and upkeep required to maintain a house. Condos also offer amenities such as pools, gyms, saunas, indoor parking and recreation rooms. Condo ownership is however fundamentally different from home ownership and there are considerations that buyers should keep in mind when buying a condo.
When you buy a home you are purchasing the building and the lot that the building sits on. Your ownership is whole in the sense that you (and/or your spouse) are the sole owners of both the entire building and lot. When buying a condo things are different.
Condo ownership falls into two different types in Quebec: divided co-ownership and undivided co-ownership. While most new construction and many existing multi-unit buildings are generally divided co-ownership, some older duplexs and similar condo-conversions may in undivided co-ownership. In undivided co-ownership, you are essentially buying a share in a whole property. Purchasing a condo in a converted duplex for example, you would be purchasing about 50% of the shares of the whole building and land. As such you would be responsible for 50% of the costs of maintaining the whole building, including roof, windows, foundation, hallways, yard and everything in between. You have the exclusive use of your condo unit but you also own 50% of the shares in the whole building.
Condo ownership falls into two different types in Quebec: divided co-ownership and undivided co-ownership.
The advantages are that the building is taxed once (instead of once for each condo), and divided among the owners based on their share of the building. The disadvantages are that they can be more difficult to get a mortgage on an undivided co-ownership without a larger down-payment (can be 20% or more down). Another big disadvantage is that should the other co-owner(s) not be able to pay their share of the maintenance and taxes you could be responsible for paying the entire amount. There are also rental rules that come into play that make it less desirable to rent an undivided co-ownership condo should you decide to move out and want to rent it. With divided co-ownership the lines are much clearer.
Most often when we refer to condo ownership we generally mean divided co-ownership. In this type, you typically own your condos’ walls, floors, ceiling and all that is in between. You may also own storage locker and your parking space, which along with your unit will be given a separate cadastral number (a separate property) in Quebec’s land register. You may be able to sell your parking space on its own without selling your condo unit or vice-versa. If you will be occupying the condo as your primary residence, in divided co-ownership you can generally finance the condo to 95% with any bank you choose. The exception being in new construction where the developers may require a larger down payment or that you finance the mortgage through their lender. And you are generally taxed higher than undivided co-ownership, as the taxes will be based on the municipal evaluation and market value of your unit. When making an offer on a condo there are several additional documents you should look over in great detail, which don’t exist when you are buying a house.
In most typical offers to purchase a condo, your real estate broker will advise you to make the offer conditional to verifying several key documents before agreeing to purchase. These include:
A lengthy legal document that spells out all the regulations and rules regarding the condo building its division and regulations. It will usually answer many questions such as whether pets are allowed, who is responsible for maintaining the balconies and windows, are barbeques and satellite dishes acceptable, who can use the yard, how is the reserve fund established. As boring as it is to read through, as a future owner you owe it to yourself to read and understand this document.
A good real estate broker will also go through the declaration of co-ownership with you and advise you on potential issues that could have an impact on your ownership. Along with this also make sure to get a copy of any other condo rules and regulations documents that exist.
A good real estate broker will also go through the declaration of co-ownership with you and advise you on potential issues that could have an impact on your ownership.
When the co-owners meet at their annual general meeting to discuss issues affecting the property, and to take decisions on various issues, these decisions and discussions are recorded in the minutes for the owners (and future owners) to read and keep as a record. Major improvements and upcoming expenses (new roof, windows, foundation issues, etc.) will often be discussed in these minutes. It’s important to see what additional major costs the co-owners will have to look forward to.
Typically, these will be detailed financial accounts of how much was received in condo fees each month along with how this money was spent, how much was put into the reserve fund (and how much is currently in the reserve fund to pay for major required renovations) and how much each of the suppliers were paid for their services. They will also usually forecast the budget for the upcoming year. It’s an essential document to review as a future co-owner, it’s important to be aware of whether the building is well-run and that there are sufficient funds put aside for major projects so that you don’t have to pay out of pocket to keep the building maintained.
Condo ownership while being a more complicated form of ownership than home ownership offers a great many benefits in terms of lifestyle, convenience and freedom that cannot be had with home ownership. However, when you are buying a condo, you are not just buying a unit in a building, you are buying into all the other factors that can have an impact on your enjoyment of the space; the type of ownership, the other co-owners, the condo rules and regulations, the management of the building and the financial well-being of the building itself. A good real estate broker can guide you through the buying process, help you avoid some of the financial pitfalls and find you the perfect condo to fit your lifestyle.
An earlier version of this article I wrote appeared in the Montreal Times newspaper.
I'm Andrew Mitchell, Chartered Real Estate Broker and Owner of Vistacor Realty Group. I help buyers, sellers and investors in the West Island, Montreal and Vaudreuil-Soulanges areas buy and sell homes. My goal is to provide you with useful, straight-forward insights and relevant real estate market updates. Contact me with any questions. Follow me on twitter here.
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