Due diligence: a seriously underestimated and undervalued step in the real estate buying process. Those who end up saying, “Lets buy a condo” and rush into the process have more to lose than those who have done some due diligence. You should create a checklist that outlines both your short and long-term requirements, and puts into perspective all the various elements of a property including price, levies, taxes, property facts and more.
By creating this list, you can look back and compare properties you have seen and really assess your decision, ensuring you are making a sound investment choice. So what should this checklist look like? Read on!
A major factor people forget to jot down is immediate and simple details about a property. The address, town, name of building should be clear so that it’s easy to keep your condos organized.
Financial implications are big deciding factors for most buyers and should be evaluated properly before making any sort of commitment. Remember, putting forward an offer is like signing an agreement. You need to be absolutely sure before reaching out.
Some of the financial factors you should consider include:
- Cost of the unit
- Does the cost of the unit include a parking space? Does it also include a storage locker?
- Is there any additional parking spaces available that you can rent or buy? Is there free parking for guests?
- What are the condo fees?
- Are there increases in costs scheduled? If so, how much and how frequent are the increases?
- Do the condo fees include utilities? If not, what is the estimated amount you’ll be paying every month?
- What are the taxes?
- Are there any current or special levies?
- What will be your total monthly cost be for the property with everything included? Are you within your budget?
It is important to create a structure in understanding your costs, so you can compare between properties.
Judging if a unit is worth the dollar investment is very important. If you can’t see yourself living within the space, then you are wasting your time going through the whole process.
There are various things to consider when looking at a unit.
- What is the square footage of the unit?
- How high is the unit? The higher the unit, the more expensive the property. However, the higher units generally have a better return on investment.
- Can you envision yourself in the layout? Is the layout and size appropriate for you for at least the next few years?
- Is the location of the unit near high traffic areas within the building? These include garbage chutes, staircases, elevators, recreation rooms and more. Not only will these units be noisier, units in close proximity to them generally have a somewhat decreased value than others.
- Are there any noticeable repairs that need to be done that won’t be covered under maintenance fees? If so list them and estimate the cost.
- Write down criteria for your purchase. These are the “must-haves” within the unit that need to be there in order for you to be happy. This includes things like a second bathroom/ensuite, balcony, an open layout kitchen, an island in the kitchen, windows inside the bedroom, an extra bedroom, a fantastic view, etc. Make sure you prioritize what is important to you.
Making an overview of what the building offers is a good way of seeing if your maintenance/building costs are worth it or not. Some buildings offer a handful of extra amenities – such as a pool and gym – while others offer the full silver platter including guest suites, theatre and more. Here are some of things to add to the checklist and check off when looking at the property:
- BBQ Deck
- Gym/Fitness Rooms
- Games Room
- Theatre Room
- Party Room
- Guest Suites
The Location of a property is probably one of the least evaluated factors of condo buying. The thing is, just figuring out if a neighbourhood is good or not is not the only thing you need to look at. Understanding the demographics of a community, transportation hubs within the community, restaurants, walkability, bike riding routes and more all play an important role in understanding a neighbourhood, its demand and its impact on your property and its long-term demand.
Here are some of the things you should keep in mind and check-off when working your way through a unit:
- Are you in a relatively safe neighbourhood? What are some of the security features of the community? (neighbourhood watch, enclosed property, 24/7 patrolling security, etc.)
- Is the neighbourhood developing? This can be seen through new developments, gentrification of the area and rapid renovation of older properties.
- Are there decent nearby restaurants and shopping options nearby?
- How close are you to decent transportation methods such as a highways, main streets/roads or public transit?
- If you commute, how long is your commute? Do you have multiple options of commuting in case of emergency?
The Annual Budget
The annual budget will provide you with a good understanding about the costs of managing the condominium building. In fact, it is up to you to ensure that you take a look at the annual budget. Add these to the list:
- What was last year’s budget?
- What are the actual operating costs? Make sure you check for discrepancies between the two numbers!
The Condo Reserve Fund Study
In the province of Ontario, a condo is required to carry out a Reserve Fund Study periodically, every three years. A Reserve Fund can only be used for replacement and non-routine repairs of common elements, such as assets of the condo, which include replacement of the roof, windows, carpets, the swimming pool, recreation facilities and more.
Condominiums that operate on a small budget generally carry out a study and then re-fresh it three years later, rather than update it every year. Here are some questions you must ask when evaluating the reserve fund study of a building:
- Is the reserve fund study current? As mentioned, it should be less than three years old.
- Are there any current or pending cash calls?
- Does the reserve balance match the financial statements, within reason? Do you find any significant discrepancies?
- Do the contributions match the budget and financial statements?
The Condo Corporate Insurance
Condo Corporate Insurance is purchased by the condominium corporation to cover against legal liabilities, condo fees, property costs and much more. It is important for condo’s to have such an insurance and to ensure that the policy is good. Here are some of the questions you should be asking when looking at this element of your resale purchase:
- Is the policy adequate?
- What is the deductible on the Corporation’s insurance?
Make sure you take some time to speak with the condo management to get a better understanding of the operations of a property, the organization and an overall feel of the building. The condo board is also required to tell you if there is any pending litigation against the condominium organization, something you need to take into account before you commit thousands of dollars of your own money towards a property.
Due diligence will help you better evaluate their investment and create a certain level of self-confidence in the condo you are investing in. It is important you do this because no matter how much knowledge a real estate professional has, it’s important that you as the buyer are confident in the condo as well.