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Condo fees: look into the future

December 18 2015 by Denis Doucet
What you'll learn
  • Low condo fees are not necessarily the bargain you think.
  • Find out the difference between condo fees and reserve funds.

Everybody wants a bargain, and when it comes to condo fees, a bargain looks enticing. -But think twice; are low condo fees really an indication of good property management?

Ongoing expenses
The condo association ensures that basic quality of life is taken care of for the condominium's co-owners. This requires financial management of basic expenses related to the property. These expenses include: the premium on the insurance policy, the cost of snow removal contracts, landscaping, maintenance and janitorial services, safety equipment inspections, wages, and other collective expenses on the building.

It's also important to take long-term expenses into account. This means keeping a reserve fund adequate to cover major costs that may occur in future; this is where financial risk comes in.

Reserve funds
Management and maintenance of a co-property is much the same as managing a single-proprietor property. The following are examples of normal maintenance costs likely to arise over the life of the building. These are items that will need to be fixed or replaced:

  • Roof
  • Doors and windows
  • Common spaces (paint, floor replacement)
  • Indoor and outdoor parking spaces
  • Exterior surfaces
  • Balconies and ramps
  • Terraces
  • Landscaping
  • Other: elevators, pool, heating/cooling systems

Accumulated reserve funds pay for these types of expenses. Most condo associations don't accumulate enough of a reserve fund to pay for these inevitable costs. When maintenance and repair costs arise, condo co-owners have to pull out their check books, and are sometimes required to pay thousands of dollars. For peace of mind, it is preferable to have a prudent reserve.

The annual amount of reserve funds to be set aside for major future expenses is calculated by a specialized company. Usually they conduct a study to base their calculation upon. In the absence of such as study, it is recommend that the rate is calculated based on a percentage of the insured property value.
Having a decent sized reserve fund is a guarantee of good planning and management. It's also an attractive feature for future buyers. All in all; a really good idea.

Key takeaways
  • Condo fees include maintenance costs and reserve funds
  • A well-stocked reserve fund is a benefit in the event you have to sell the property
  • Prudent financial management by the condo association is priority one
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