10 Tips in Buying a Condominium in Canada

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Buying a Condo in Canada can be an excellent decision. There are many perks to owning a condo, such as low maintenance and taxes. Condos allow you to live comfortably and provide you with the opportunity to live close to work and other amenities.

What is a Condo?

A condominium is a single, private unit owned by an individual. Although units are privately held, they are a part of a larger shared complex. Condominium complexes can include shared amenities for unit owners such as terraces, gyms, and pools. Owners pay a monthly condo fee used to hire maintenance, security and administration staff.

1. Hire a Condominium Specialist Real Estate Agent

   Although you can browse condo listings on your own, you are unlikely to have the expertise that a real estate agent has. A specialized agent will guide you through the documents, contracts, and condominium terms needed to finalize a sale.

   Most importantly, an experienced agent may have extra information about the history of a building. For example, they may know about the developer’s reputation, previous damages to a building, or even condos prone to flooding. Their industry knowledge will help you determine which developers, property managers, and locations to avoid. This information alone could save you a costly mistake.

2. Review The Condo Finances

   Condo management will provide this information to you upon request. In particular, it is vital to ask about condo fees, the reserve fund, and special assessments.

   Condo Fees: These are the monthly dues every owner must pay to cover maintenance, security, and administration fees. These fees will contribute to the building’s insurance but you will also need to get condo insurance to receive a mortgage. A mortgage lender will also require this information when assessing your gross debt service ratio (GDS). Lenders see a low GDS as more creditworthy which will help you get a larger mortgage.

   Reserve Fund: A quality management firm will set aside a portion of monthly condo fees to plan for significant repairs. It is better to live in a condo with a high reserve fund. This is because management will not need to raise condo fees to cover upcoming expenses frequently.

   Special Assessments: There are certain occasions where the condo will need an emergency repair or overhaul outside of the budget. On these occasions, owners will need to pay a special assessment on top of their monthly condo fees. These are a burden to owners and shows the importance of a reputable property management firm.

3. Research the Property Management Firm

   Property management has a significant impact on your quality of life. They oversee the maintenance of the complex to ensure everything is running smoothly. A poor property management firm will frustrate you with delayed maintenance requests and frequently raise condo fees.

   Even worse, they could neglect to maintain your amenities which decreases the value of your unit. Before buying a condo, research who manages to ensure they are reliable.

4. Determine the Quality of the Building

   Although a cheap condo can be appealing at first, you'll quickly be paying high maintenance fees when things break down. It's also essential to research the age of the building because it could be due for repairs. Older buildings need to invest in expensive overhauls such as roofing, plumbing, and electricity. If an older condo does not have a sufficient reserve fund, owners must pay special assessments to finance these expensive repairs.

5. Exclude Unwanted Amenities

   Even if condo owners don't use the amenities, they still need to pay for maintenance. Condos with more amenities cost more to maintain and, therefore, typically have higher condo fees. This is why buyers should only look for amenities they plan on using.

   Pools, for example, are costly to maintain and are therefore additional expenses that condo owners must bear. If you don't plan on swimming, exclude pools from your search to save on monthly fees.

6. Research Nearby Construction Plans
   

   It's best to be aware of construction plans near your condo. It is no fun to be surrounded by construction noise, dust, or traffic. Additionally, if they are building another apartment nearby, it could obstruct your view.

7. Find Out the Condo Board Rules

   Condo owners are required to abide by additional rules enforced by the condo board. These rules are designed to create a peaceful co-living environment and are essential to understand. Typical rules range from subletting to parking and define how unit owners should behave in your complex.

   Breaking these rules could lead to fines or even eviction, depending on their severity. To avoid this outcome, ensure you read the rules before signing an offer to buy. Consider hiring legal counsel to review the contract of purchase and sale.

8. Review the Parking Structure

   Parking in a city is no fun, so it's essential to understand the parking structure of the condo. If you plan on having a car, you should make sure there is sufficient resident parking.

   Additionally, you should know the availability of guest parking. If you plan on having friends over, it's not kind to make them drive around and pay for a spot.

9. Research the Airbnb Policy

   It can be frustrating to sleep with loud partying happening next door. This can happen in condos that enable Airbnb rentals. Double check on the Airbnb app to see if there are any active listings in the building. Some buildings may say they don't allow Airbnb but don't enforce the policy. Additionally, guests may break amenities that you pay to repair. If your condo allows Airbnb, see if those units are restricted to particular floors and try to avoid them.

10. Count the Number of Elevators

    Running late because of a slow elevator is a frustrating experience, especially if you live on a higher floor. If your unit requires you to ride an elevator, make sure there are enough to handle rush hour periods. Condos with more elevators will decrease your waiting times and stress.

    Some condos even have exclusive elevators for higher floors. These will significantly reduce your wait time as you no longer need to stop on every floor. If this feature is essential to you, talk with a real estate agent to ensure you get what you want.

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Buying a Condo vs House

Before buying a condo, it's essential to understand if the lifestyle is proper for you. Some of the main benefits of living in a condo include:

• More affordable than houses
• No time spent on external repairs/ maintenance
• Ability to live closer to work
• Amenities
• Socializing with other owners
• Easier to manage as a rental investment properties

However, condo owners pay a monthly maintenance fee. If you aren't using amenities, then the payment could not be worth it. Additionally, condo owners have less flexibility when it comes to renovating their property.

Buying a house provides you with more flexibility and control of your property but with less convenience. Homeowners don't need to pay monthly maintenance fees but are responsible for any repairs. Some of the main benefits of buying a house include:

• Owning land
• Flexibility to renovate and restructure whenever you want
• Fewer rules
• Typically better price appreciation

Is Buying a Condo a Good Investment

Condominiums are a passive investment option for individuals looking to make money. The condo board handles maintenance, so there is less labour than with a single-family house. However, condo fees might reduce your ROI and put it below that of a single-family property. This is the cost/benefit tradeoff that condo investors must accept.

Cost of Buying a Condo

The two main costs you will experience when buying a condo include closing costs and the down payment.

Closing costs are additional expenses buyers pay when finalizing a real estate transaction. They are separate from the listing price and includes things such as but not limited to:

• Land transfer tax
• Attorney fees
• Property inspections (in some cases)
• Mortgage default insurance (in some cases)
• Property taxes for remainder of year (in some cases)

However, there are specific occasions where buyers will pay more or less closing costs. For example, if a buyer has less than a 20% down payment, they will need to qualify for CMHC mortgage insurance. These costs vary by region, so you will need to find the tax rate applicable to your province.

Additionally, non-residents will pay an extra speculation tax (NRST) when buying residential real estate in Ontario and British Columbia. These taxes typically add up to 20% of the property value and must be paid at closing. Although the 2022 Canadian Federal budget proposed banning foreign homebuyers, the NRST will continue to apply until the bill is passed. Additionally, NRST will likely resume when the ban is lifted.

These are the two main expenses to be aware of. However, there are also government incentives designed to offset closing costs. These incentives include the Home Buyers’ Plan (HBP), first-time homebuyers program and the GST/HST rebate on new houses.

A down payment is the amount of money you pay upfront before buying a home. It varies depending on your credit score, debt service ratios, and source of income (employee vs. self-employed). However, the purchase price has the most significant effect on your minimum down payment. You will fall in one of three buckets depending on the purchase price:

• Condo costs less than $500,000: Minimum down payment of 5% with CMHC mortgage insurance
• Condo costs between $500,000 and $1,000,000: Minimum 5% down payment on the value less than $500,000. Minimum 10% down payment on the value over $500,000. For example, the minimum down payment for an $800,000 condo would be $55,000 (500,000*0.05 + 300,000*0.10) with CMHC.
• Condo costs over $1,000,000: Minimum 20% down payment (not eligible for CMHC).

FAQ

The benefit of buying a condo over a house is that condos are low maintenance and typically require lower property taxes than a house. At the same time, you have access to amenities in a condo that you wouldn't otherwise have in a home.

Buying a condo is better than renting an apartment because you get to build equity with each mortgage payment. Additionally, you own any appreciation in the value of your condo. In the long term, buying real estate will have a better impact on your net worth than renting from someone else.

If you can't pay both your mortgage and condo fees, you could be held liable for breach of contract. Your best option is to talk with an attorney to help you navigate the terms of your contracts. You may also be able to negotiate with lenders and determine a new payment plan. Lawsuits are expensive and stressful, so they want to avoid them too.

If you are temporarily in financial distress, you can borrow money and pay it back when in a better financial situation. Some financing options include a home equity line of credit (HELOC), or a mortgage refinance. You must be careful when approaching this strategy as you don't want to spiral into debt. A quality mortgage broker can also help you with debt consolidation services.

Typical problems that you may encounter as a condo owner include:

• Loud maintenance
• High monthly condo fees which frequently increase
• Fire drills
• Loud neighbours
• Slow maintenance requests
• Inappropriate use of common area amenities

Your primary contact should be a real estate agent with expertise in condos. They will guide you through the process of purchasing a condo. Additionally, you should also talk with a mortgage broker to find the best financing options available to you. You can optionally speak with an attorney to help you review condo rules.