Depreciation is an important word to analyze when it comes to any real estate purchase. An example of commonly known depreciation is when you buy a new car: it is often said that you lose 20 per cent of a new car’s value the minute you drive it off the lot. Thankfully housing doesn't depreciate at anywhere near that level, but over time it can be a concern.
As a rule of thumb, the first 20 years of a condo's life should be relatively problem free as long as the builder is reputable and knows what they are doing. But after that, maintenance items do crop up and it's important the strata council has a plan to address them. The longer they wait to fix any outstanding items, generally the more it will cost.
In BC, strata councils are now required to facilitate a deprecation report for its residents, but they can avoid paying for one if there is a three-quarters vote to waive the requirement during their annual general meeting. Personally I think depreciation reports are the best consumer protection available to residents and should be embraced, but often times stratas will attempt to stick their heads in the mud and avoid the reality of the issues facing their building.
If fees are too low this can often be a warning sign that there is not enough money in the reserve contingency fund to address any major issues. If there is not enough money to pay for major issues facing the building how does it get paid for? A special assessment is when a strata gives each owner a one-off bill proportional to each unit, and it must be paid within a certain time frame. Emphasis on “must” – there is no negotiating this payment, once the decision has been made. Pay or face the penalty, and this can even include a lien on your condo.
There is no standard amount for a healthy reserve fund, but there are some decent rules of thumb that you can go by. For a wood-framed building I often recommend trying to find a condo where there is a minimum of $5,000 per unit in reserve. For example, a 40-unit building should ideally have $200,000 in the bank. For a concrete high rise building my recommendation is $10,000 per unit. It's not that there are more problems with high rise buildings, it's just that when they occur they are often more expensive to resolve. The amount needed goes up the older the building is.
Low monthly strata fees can often be an illusion of health, when in fact it's quite the opposite. It's important to recognize this and analyze it rationally. Getting hit with a special assessment out of the blue can often cripple an owner financially, I've seen them as large as $60,000. It's important to work with someone who can give you professional advice and help you make as informed decision as is humanly possible with all the information available. It's one of the most important considerations to look at when purchasing into a strata complex, so make sure you analyze all the variables and make a sound decision.
Source: Barry Magee - REW.ca
Aug 26, 2015.
Real estate in Vancouver is pricey and getting more so by the minute, with few signs of slowing down. In fact, prices have doubled in Vancouver in less than a decade and continue to rise.
A lot of Vancouverites have postponed homeownership not because they can’t afford it, but because they’re concerned about (or waiting for) a house price correction. Meanwhile, they’re paying rent each month while their peers who own homes are building equity so they can eventually upgrade in the future and will be mortgage-free when they retire.
Here’s a look at the reasons to stay on the fence and keep renting versus entering our hot real estate market.
One of the major downsides of postponing homeownership is not being able to afford the property in future that you can afford now. Many of the people who sat on fence about buying in the Greater Vancouver area a few years ago can no longer afford the home they could have bought, not to mention the thousands of dollars they’ve spent on rent. There’s no reason to think that will change any time soon – so the longer you wait, the further you get left behind, and you’ll end up paying off your landlord’s mortgage for the rest of your life instead of your own. What’s more, rental prices in Vancouver are skyrocketing too, and rental vacancies are extremely tight, so renting is no longer a cheap or secure option.
If you buy a home, even in the unlikely event of real estate prices subsequently crashing, with the equity you are creating and current low rates, you could still break even on your housing costs when you consider the amount you would have paid every month in rent. Plus eventually the market will go back up again – it’s only a temporary loss of value and is only a problem if you wish to sell before the price has recovered. (And the chances of a major crash are low, according to all the market indicators and economic forecasts.)
There is only really one situation where it makes financial sense to continue renting, and that is if buying would truly stretch your finances to the point where you wouldn’t be able to deal with an emergency like a job loss or a major repair bill. If that’s the case, and there’s definitely no option for you to buy a home at a lower price that doesn’t stretch your finances, then you should save what you can and wait until you’re more stable financially, and then buy. Many people take pride in owning a home and making it their own, but there are additional costs that aren’t associated with renting such as maintenance, strata fees and the potential for special assessments, and you do have to be able to pay for them.
Each individual’s financial situation is different, so even if you’re not sure about buying, go to a mortgage broker to go over your budget and fully understand what you can afford based on your income and expenses (here’s the useful expenses worksheet I use with clients). Your broker can run different scenarios to show how different rates, terms and amortization schedules would impact your monthly payment. Then you can make a fully informed decision about whether it’s time to buy instead of waiting for a crash that may never come.
Source: REW.ca Aug 18, 2015
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