# Long term Value of condos



## thompsg4416 (Aug 18, 2010)

Cmf's I've been wondering lately what is the long term upside to investing in a condo? I see all kinds of older condos at low principal cost but with sky high condo fees. I know all about the reserve fund and the reserve fund studies. Etc etc. it just seems to me (Unscientifically) that condo value seems to arc. I.e. you buy they start to rise in value and have low condo fees. Over time it will reach a peak of value and low condo fees. Then like a car will start to decrease in value and the condo fees slowly creep up. There are all kinds of 2-3 bedroom older condos in ottawa that prove this example. 

Am I wrong or am I looking at examples of bad reserve funds?

I ask since I own a newer condo(2004) which i rent and I'm looking at the possibility of purchasing another to live in.


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## Berubeland (Sep 6, 2009)

Old buildings cost a lot more to maintain. That is all.


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## sags (May 15, 2010)

Just from looking..........it seems like the concrete apartment tower condo styles show their age over time. I think brick condos........like converted lofts, factories, churches etc may hold their value better over time.

A classic building is a classic building..............and in a desirable area will always be attractive to buyers.


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## kcowan (Jul 1, 2010)

Our building is concrete and glass. The concrete is not maintenance-free and is now being repainted regularly. Copper plumbing has a useful life and then has to be replaced. Elevators have to be refurbished/modernized. I was amazed at things which I assumed would be maintenance-free are not.


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## Jay (May 9, 2012)

A lot depends on how the condo is built and run... though from what I've seen, aside from a few diamonds in the rough (older buildings that have been built and maintained well such that their condo fees are reasonable), many condos follow the trajectory that you outlined. 

There is little incentive for the builders or property managers to build/maintain a building such that it lasts a long time with lower repair costs... in fact, it's quite the opposite. It's in the builder's interest to cheap out just enough that the building is in good shape until they have washed their hands with the property, while the property managers have no interest in keeping maintenance costs down - because they get the lion's share of the maintenance costs over time. 

You could argue that the reputation of both builder and property manager would be at stake, though that would only be the case if condo residence/buyers were informed consumers - and they usually are not. People buy condos thinking it means they don't have to worry about their properties - and they often pay a massive premium for that mindset (much more so than say... a renter in an apartment building). Condo boards change frequently, and usually do not have anyone who has a clue about how to manage a property or run a multi-million dollar company.. thus, they usually turn authority over to the property manager. Which is a bit like taking your car to the mechanic every time, handing him your credit card, and saying "do it all" at each visit... you can guess where that leads.


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## Berubeland (Sep 6, 2009)

This is so well said. 

In fact it is common to pay condo managers a percentage of he annual budget. The bigger the budget the bigger the paycheck. Systems should be designed to encourage people who save money if that is the goal.


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## andrewf (Mar 1, 2010)

Realistically, only a small % of the value of a condo is the land it sits on. Housing values are composed of two main components:

-land value, which is fairly volatile but long term increases at roughly the rate of inflation
-improvements/structures. These are depreciating assets, and will decline in value absent continued investment.

When viewed through this lens, it's not surprising that condos depreciate in value while condo fees rise. The value of the structure can fall to nearly zero. Once it becomes negative (offset by land value), the building becomes a candidate for demolition and redevelopment.


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## Cal (Jun 17, 2009)

I have been surprised at what some of the condo fees are for older buildings here in the GTA, I am surprised how much some people pay to live in their own condo (yes i am aware it goes towards concierge, upkeep, maint, snow plow etc). It seems easier to control the costs of your home better than that of your condo.


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## james4beach (Nov 15, 2012)

I wonder what's going to happen to the maintenance costs on all those new Toronto condos. You know, the ones that rained broken glass down from the skies on my walk to work... there was a point there the police had closed off several of my walking routes due to falling glass from junky condos.


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## jamesbe (May 8, 2010)

thompsg4416 I noticed this exact thing with my condo in Ottawa. The fees started to rise as the building was getting older and the value was starting to drop.


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## james4beach (Nov 15, 2012)

After seeing what my parents went through with their condo, I don't think I could ever buy a condo.

Their older building decided they wanted to replace all the balconies with new, prettier glass balconies. The total bill of $1.7 million is mostly paid direct by condo owners (a little is paid from the reserve fund), and my parents got a bill for nearly $30,000. So now they've got to cough up $30k cash to pay for a project they opposed in the first place. The repair work also made their balcony unusable for 2 summers, and the frequent jack-hammering and drilling made the condo nearly unlivable for a little over a year, due to deafening noise! They had to wear earplugs most of the daytime hours for nearly a year.


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## sags (May 15, 2010)

After reading all the horror stories, we have crossed "apartment style" condos pretty well off our list of possible future buys.

Around here, the word "condo" primarily means a townhome type of unit. We have huge quantities of those and only a few apartment style condos. Quite the opposite of some other cities I would guess, unless everyone calls them something else

With a townhome type of unit.........the main concern would be the shared roof and any underground parking facility. Quite a few townhome units have their own garage anyways.

Avoid the underground parking, check to insure the units have new windows, doors, roof, and furnace...........and all of those huge special assessments that seem to plague apartment style condos should be avoided.

Townhome condo units that were built years ago in "desired areas" have been a good investment for the owners. They continue to attract good prices and don't last long on the market.


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## peterk (May 16, 2010)

I'll be in the market for an apartment condo perhaps next year. I've absolutely noticed the trend you mention. Seems like the thing to do is to wait until a new building is 4-5 years old. By then all the units have been sold, if the building is going to be condemmed it will have been by this point (it happens), the builder has turned the building over to a property manager and the artificially low condo fees have been raised. 

Then the building has 10 good years of stable fees, low maintenance, and "newness". That's the point to sell out. Resale value will drop, condo fees will rise, but maintenance will not keep up with the problems so value will drop even more. Condo fees will continue to be jacked up, implicitly lowering the resale value in the process. 

Then at 30 years there will be a major assessment. Tenants will pay 20-30k each for renos, to add maybe 5-10k to the value of the place. Condo fees will continue to rise.

Some buildings I've seen are 40 years old, condo fees are about $500/month, and purchase price is ~200k


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## thompsg4416 (Aug 18, 2010)

So I think its agreed a condo is generally a poor long term investment. Unless you're investing in the exception.... Sure the tenent will continue to build me equity but that will be offset by a rise in condo fee's and depreciation in overall value. There are better options.

I've been on the fence about selling my condo when I return to Canada next year. But I think I've made up my mind. My mortgage is up for renewal this summer and I'll likely just get a single year renewal and sell next summer.

Thanks for the input!!


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## Jay (May 9, 2012)

peterk said:


> I'll be in the market for an apartment condo perhaps next year. I've absolutely noticed the trend you mention. Seems like the thing to do is to wait until a new building is 4-5 years old. By then all the units have been sold, if the building is going to be condemmed it will have been by this point (it happens), the builder has turned the building over to a property manager and the artificially low condo fees have been raised.
> 
> Then the building has 10 good years of stable fees, low maintenance, and "newness". That's the point to sell out. Resale value will drop, condo fees will rise, but maintenance will not keep up with the problems so value will drop even more. Condo fees will continue to be jacked up, implicitly lowering the resale value in the process.
> 
> ...


And that's the best case scenario... There's a ~30 year condo across the street from my building (downtown Ottawa)...where the condo fees range from $700-900/month for a 2 bedroom unit.. and cost around $300k. FWIW, you can rent a 2 bedroom across the street for $1300 including hydro.


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## fraser (May 15, 2010)

It has been owner occupied homes for us for the past thirty years. We are about to move into a condo rental. Nice place. |It is five years old and they are just finishing the job or replacing every water pipe in the building. The units are a mess. The drywall folks are just finishing and the painters go in next week. We decided to rent first in order to make sure that we liked condo living.

Now we think that we may just rent. We did very well on the homes that we have owned in Vancouver and |Calgary. I think that we will keep those gains, pay rent, and let someone else take care of the place. Besides, the purchase numbers do not look very attractive at the moment. When we lived in Vancouver we saw friends go through the leaky condo process. $30K is chicken feed compared to what one had to pay-try two assessments on one condo both of which were just north of $80K. My parents were fortunate. They were in the same condo for 20 years with no issues. They sold, and missed a significant assessment three months after selling.


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## kcowan (Jul 1, 2010)

fraser said:


> My parents were fortunate. They were in the same condo for 20 years with no issues. They sold, and missed a significant assessment three months after selling.


I think my friend bought their condo. When the surprise assessment was announced, they were incredulous. They had checked through meeting minutes prior to making their offer and there was no mention of the pending special assessment. Buyer beware!


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## fraser (May 15, 2010)

We walk by the Calgary poster child for condo disasters every day. The work has been completed. The smallest unit in the complex was apparently assessed a $100K levy. A number of people went through foreclosure-they unable to pay the assessment and of course the mortgage companies will not lend. And condos with a history of problems and assessments are difficult to sell.

It was one of the determinates in our decision to rent for while. Now that we are used to the idea we are feeling less inclined to buy. Or perhaps buy when the interest rates go up.


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## sags (May 15, 2010)

The BOC has kept the interest rates the same.........but according to Garth Turner's blog, there is a little "interest creep" going on regardless.

The prognosis from the BOC is an eventual return to "normalized" interest rates, which would be 6-8% on a 5 year amortization.

For people financially stretched at less than 3%.................that would be quite a renewal shock.

I don't know that people could afford to double up their monthly mortgage payments, since they don't appear to be saving the extra money.

Canadians have really missed the opportunity to pay down debt while it is cheap. Instead debt has been pushed up by increased home prices and commodity spending.

To paraphrase a Biblical passage.............Forgive them, for they know not what they do.


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## andrewf (Mar 1, 2010)

I don't think rates will be 6-8% any time soon.


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## Eclectic12 (Oct 20, 2010)

thompsg4416 said:


> Cmf's I've been wondering lately what is the long term upside to investing in a condo? I see all kinds of older condos at low principal cost but with sky high condo fees...


Interesting ... my co-worker bought an older condo in the downtown area because the principal cost was roughly equivalent (given it's a high demand area) and the condo fees were 40% less than a new one in the same area.

The flip side is that my brother bought an older condo where between the maintenance and the board hiring "friend of friends" to slowly do the maintenance for a jacked up fee - his condo fees have gone through the roof.


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> After seeing what my parents went through with their condo, I don't think I could ever buy a condo.
> 
> ... my parents got a bill for nearly $30,000. So now they've got to cough up $30k cash to pay for a project they opposed in the first place ...


That plus hearing my brother's description of how the board at his condo has been hijacked has me focused on options where I can leave easily such as renting or have only a few people controlling what is spent such as owning or at best, having to negotiate with one other owner.


Cheers


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## sags (May 15, 2010)

I would be tempted to get a seat on the board, if possible.

My sister in law took over the Presidents job.............just to control the yahoos.

One guy bought a townhouse condo and rented it out to a bunch of idiots, who thought having their nightly bonfire in the tiny front yard was a great idea.

They they were........sitting in the middle of a row of townhomes, in the middle of a townhouse complex, in the middle of a city......with the smoke billowing into everyone's open front doors.

She got hold of the investor/speculator in a hurry, with the threat of sending him a bill to clean everyone's unit for smoke damage.

She says I wouldn't believe the stuff people want to do.


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## sags (May 15, 2010)

andrewf said:


> I don't think rates will be 6-8% any time soon.


You are right.........that would be a huge jump.

But.........rates went from 2.89% to 2.99% last week..........and are going from 2.99% to 3.29% at RBC on Monday, despite the BOC rate not changing at all.

A 1% increase would mean a 33% increase in mortgage payments...........and with the size of some mortgages on homes these days, that could be a very healthy increase.

The question would then become...........how well home owners can absorb extra costs.

People with variable rates might want to seriously consider locking in soon.

Kevin O'Leary is in the mortgage business now. He recommends locking in to his clients and even recommended people "rent" condos in Toronto, instead of buying them


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## sprocket1200 (Aug 21, 2009)

brutal long term valuation.

who wants to live in a condo??? seriously???



thompsg4416 said:


> Cmf's I've been wondering lately what is the long term upside to investing in a condo? I see all kinds of older condos at low principal cost but with sky high condo fees. I know all about the reserve fund and the reserve fund studies. Etc etc. it just seems to me (Unscientifically) that condo value seems to arc. I.e. you buy they start to rise in value and have low condo fees. Over time it will reach a peak of value and low condo fees. Then like a car will start to decrease in value and the condo fees slowly creep up. There are all kinds of 2-3 bedroom older condos in ottawa that prove this example.
> 
> Am I wrong or am I looking at examples of bad reserve funds?
> 
> I ask since I own a newer condo(2004) which i rent and I'm looking at the possibility of purchasing another to live in.


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