Buying your first condo tips

(NC)—You are ready to make your first real estate purchase, but is a condo right for you?

Affordability and Location

"First determine what you can afford," advises chartered accountant Park Thompson, partner, Furlong & Co. LLP in Toronto.

"Housing costs are now more than the traditional 25 to 30 per cent of household income, so ensure your budget can accommodate this and the monthly condo fee. Consider the building itself – will you use all those amenities (think pool, gymnasium, etc.) you're paying for, which increase the purchase price and monthly fee? Location, location, location is the best rule. Think long term and consider resale value."

Builder's Reputation

"If it's a new condo, you're buying a dream in the air," says chartered accountant John Warren, partner, Adams & Miles LLP in Toronto. "Do your research – the developer's reputation and track record are critical because you're making a decision based on blueprints, possibly three or four years before you move in."

Start with the Tarion Warranty Corporation website (http://www.tarion.com/home/), which regulates Ontario's new home-building industry, and licenses all new home and condominium builders.

Monthly Fees

"Purchasing a condominium is different from buying a house – you are buying into a financial structure governed by legislation and run by a board. This means you have less control over your monthly costs," says Thompson.

"Know what you're buying and paying for. Owners are required to pay a monthly common-element fee, which covers the building's carrying costs and maintenance, and is set by the board. Different legal structures of condos give owners different obligations and have different costs involved. In many new condos, owners may have more control over utilities."

Beware of Sales Ploys

"Regard the cents-per-square foot ratio with great scepticism," continues Warren. "Developers' budgets are typically low to attract sales, and you'll often see 36 to 38 cents-per-square foot quoted. The cheapest price is not necessarily the best price if it's a shoddy building. While the developer is responsible for any first-year deficit, the costs creating this deficit are ongoing, and owners must pick them up. It is not uncommon for monthly fees to increase 25 to 40 per cent in the second year, with a smaller percentage in the third and fourth years.

Financial Stability

If you are buying an existing condo, review the financial statements to ensure the condominium is financially stable, without a deficit. "Ask questions," says Thompson. "Does a surplus exist for surprise expenses? Is there a current Reserve Fund Study, which is like a long-term budget indicating major repairs in the future? Is there a history of special assessments?"

Watch for Greed

Warren advises: "Beware of mercenary practices. Check the disclosure statement to see what else you must pay for once the corporation is up and running. Sometimes you are obliged to buy guest suites or mechanical and air-conditioning equipment. If the developer promises to pay in year one for certain things like elevators, be prepared for increases in the second year, when you are paying."

Further information is available by contacting a chartered accountant.

Source: www.newscanada.com