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The-Mortgage-Gal

Buying a strata property

When you write an offer to buy a home, life seems to go into fast forward mode.

Between negotiating the offer, having your financing approved, co-ordinating and attending the home inspection, and potentially selling your current home, it’s easy to get caught up in the whirlwind and becoming overwhelmed by some of the details.

During the last two weeks, I’ve had two separate clients dealing with strata-related issues, so I thought I’d share some information for you to think about if you are considering buying a strata unit.

I’m working with a client who is buying a condo on Vancouver Island. Although the building is older, the unit he is buying is lovely; it has been completely updated and is move-in ready.

He made sure he had his finances organized before writing an offer, so this should have been a straight forward approval.

When the strata documents were reviewed by CMHC, they questioned why the Strata’s contingency fund was so low.

In this situation, the Strata had been carefully planning extensive renovations to the building. They had just finished re-doing the roof, siding, and updating all of the common areas.

My client’s mortgage was approved, but it pointed out for me the importance of clients reviewing and understanding strata documents during the purchase process.

What is a contingency fund? Essentially, this is a reserve account set aside for potential repairs or upgrades that will need to be done by the strata complex. These are generally big-ticket items that do not happen on a regular basis.

Operating funds, on the other hand, cover the day to day expenses of running the strata complex. Items covered by the operating fund include things like:

  • insurance
  • landscaping
  • utilities
  • regular maintenance.

The second clients I mentioned are a retired couple living in an older complex here in Kelowna. They have a small mortgage and manage nicely on their pension income.

They found out recently that they need to come up with almost $25,000 to cover a special assessment. This assessment is to cover the expense of replacing the roof and siding on their building.

What is a special assessment?

A special assessment can be levied by a strata council to cover extraordinary expenses that arise when the strata does not have adequate money to cover the expense.

In this situation, the Strata did not have adequate reserves (in their contingency fund). Owners of the units are being offered options as to how to cover their share of the costs.

In this case, my clients either need to come up with the $25,000 up front, or their strata fees will be increased by almost $200 per month.

Living on a fixed income, they are concerned that the $200 a month will create hardship for them.

The challenge for these clients is that on their pension income, under the new lending guidelines they no longer qualify for the mortgage they are carrying, never mind increasing it by $25,000.

Their mortgage payment and current strata fee total about $750. They cannot find a home or apartment to rent for anywhere near that amount.

Puts them between a rock and a hard place.

Which brings me back to reviewing and understanding your strata documents, and playing an active role in your strata council (or at least attending meetings and participating in decisions that affect the finances of your strata).

This is important for not only purchasers but also for current owners.

A well-run Strata has a plan in place to address upcoming upgrades and major maintenance issues. This plan is usually laid out in a depreciation report, which outlines when major projects will be scheduled and helps the Strata make informed financial decisions so that funds are on hand when needed.

Strata owners vote about how finances are handled. As an owner, you can see how important your input can be.

The final important piece to consider is a review of the minutes from the previous AGM (Annual General Meeting) and the last year or so of strata minutes. You will be able to see how issues are handled, and if the Strata for the council is planning proactively for upcoming expenses.

These minutes will also likely show if the owners are a fairly harmonious group, or if there are strained relationships between owners.

Many people don’t really understand the ins and outs of living in a strata complex. For a general overview of the expectations and obligations of stratas, you can find a great overview on the provincial government’s page.

Your realtor will provide strata documents for you to review. It is important that you take some time to read the information provided and ask some general questions so you understand the health of the Strata’s finances.

If you are purchasing privately, I encourage you to hire a lawyer to review the documents on your behalf.

A few minutes spent up front, and awareness of how your Strata is making strategic decisions, can potentially save you major stress down the road.

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About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog

 



The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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