From the Condo Corner: Need a Loan?

➡️ Authored by Sharon Blondin with the Alberta Condo Network 

From the Condo Corner...

In the bustling world of real estate, condominiums stand as stalwart pillars, offering a blend of convenience and community living. However, beneath the allure of these modern abodes lies a financial landscape that demands careful navigation. Condo ownership isn't just about finding the perfect unit; it's about understanding the intricate workings of these residential businesses. From Reserve Funds to Special Levies, every financial aspect plays a pivotal role in ensuring a stable and thriving condo community. Let's delve into the nuances of condo financing and the proactive measures owners can take to safeguard their investments.

Condos are always going to be hot, buy/sell quickly and they’ll always be a crucial portion of our housing market. But… they are still essentially businesses and you may have to look at more than one to find the right fit.

Evaluate the "health" of the Corporations Financials

In some cases, there are condo complexes that have not been saving money in their Reserve Fund in a reasonable and sufficient manner. Major repairs/replacements must be naturally anticipated and appropriate annual Reserve Fund savings can reduce the
risk of Special Levies (cash calls). Most condo owners would prefer moderate condominium fee increases, in order to be financially prepared for those years when major replacements of common property become necessary. When the condo is not appropriately prepared, Special Levies become necessary and owners get a bill for their share of the cost for an upcoming project (or projects), over and above monthly condo fees.

In some cases (far too many in our experience) these Special Levies can reach $70,000 (or more) per unit. When this happens, there are undoubtedly numerous owners in any condo complex that can be driven into foreclosure.

Need a loan?

Due to various condominium complexes requiring a large infusion of cash for critical repairs, specialty lenders have popped up. Most major lenders will not lend money to condominium corporations. When a condominium corporation is forced to approach these specialty lenders, a series of unfortunate and serious circumstances can unfold. Loans like these (which tend to run in the millions of dollars) charge high interest rates and cause negative equity to be shown on financial statements and balance sheets for a decade or more.

Risky Business

This has the potential to reduce market value and the ease of marketability generally. Other serious circumstances that often follow include being red flagged by major lenders and mortgage insurers, due to negative equity and what could be seen as financial mismanagement by the current Board and perhaps all previous Boards of Directors. This is another weight on the scale that can make condo units at various complexes much harder to sell and to keep an attractive market value.

Condo ownership requires a measure of Pro-advocacy

Owners hate condominium fee increases and Boards of Directors are (more often than not) reluctant to implement them, even when necessary. There is no prize at the end of the day to have low condo fees, while blindly walking straight into cash calls. Today’s condo ownership requires a measure of pro-advocacy. Unit owners and Boards must keep the idea that condos are businesses at top of mind. Owners need to be familiar with the documents that outline the corporation’s financial needs (Reserve Fund Studies) and compare those documents with the financial plans (budgets) being put in place by the Board.

Only an ownership group can hold a condominium Board accountable. Condo owners must keep their hands on the wheel of their homes/investments or they can find out quite suddenly that they are no longer on the road.

Pro-advocacy involves attending AGM’s, gathering annual financial statements, reading meeting minutes and gaining a basic understanding about what those Reserve Fund Studies are meant for.

Conclusion

Condo living embodies a unique blend of independence and collective responsibility. As the condo market continues to evolve, financial prudence becomes non-negotiable. By embracing pro-advocacy and staying actively involved in their condo communities, owners can steer clear of financial pitfalls and uphold the long-term value of their investments. Let's navigate the condo living with foresight and diligence, creating not just living spaces but resilient and flourishing communities for years to come.

About Alberta Condo Network:

"Alberta Condo Network is taking CondoQuest to the next level as the preferred Condominium Document Review Service in Alberta. We are on top of buildings and trends in the Edmonton area and throughout Alberta. We are fierce buyer/owner advocates."

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