Your 7-step guide to investing in Kitchener-Waterloo condo town-homes like a sophisticated investor

ChecklistInvesting in condo town-homes can be some of the “easiest” investments within your portfolio. Although investing in any type of real estate requires large amounts of analysis and due diligence, condo town-homes can be very hands off which is why they are so attractive for both new and veteran investors. Investors like the fact that the exterior of their properties are being taken care of by professionals i.e. Windows, doors, siding, roof, foundation, lawn care, snow removal etc. included as part of their condo fees. The investor generally only has to worry about maintaining the interior of their property. Another plus is only having to insure the interior structure of the unit as the exterior building is insured under the corporation. This can make your payments lower than with a freehold property. Now that we have looked at some of the positives of investing in condo town-homes, let’s discuss what your 7-step checklist should be before purchasing.

1. Are the condo fees too high?

When looking at perspective condo town-homes, make sure the property still cash flows after all costs i.e. Mortgage, taxes, condo fees, insurance, property manager, 5% vacancy and 5% maintenance. If the property cash flows over and above these calculations, you may have a potential investment property. Investor tip: Average condo fees in the KW/Cambridge area are $250 per month. Generally, if a property has condo fees over $300, it can be very hard to make that property cash flow without putting more than 25% down.

2.What is the current condition of the complex?

When you go to see the unit, take a walk around the complex and take note of the overall condition. Things to look for are if the grass is cut/taken care of, is the snow shoveled if it’s winter and the overall maintenance of the exterior of the units. If you sense major neglect in all of these areas, you may want to reconsider being involved with this corporation.

3. What do the condo fees cover?

If you are looking for a “full service” corporation to cover everything exterior as explained earlier, you may want to ask the property manager of the corporation before getting too far into your due diligence. Some may cover everything except lawn and snow care. Perhaps the windows and doors are excluded etc.

4. Are there major projects coming up?

While you have the property manager on the phone, ask them if there are major projects planned in the future. Perhaps the town-home you have done a ton of analysis on cash flows just right with $250 condo fees per month but the corporation has planned to re-pave all of the driveways which will increase your condo fees to $300 per month in order to fund the project. All of a sudden, this particular property may not cash flow in a few months. Another major question to ask the property manager before you put too many hours in due diligence for this property is #5 below.

5. Are investors allowed?

Some corporations do not allow rentals or limit the amount of investors at one time. Some may only allow say 60% of units to be allowed as rentals. You do not want to go through the entire process to find out from your lawyer this is a bad investment and have to back out or worst yet, actually close on the property and not being allowed to rent it out!

6. Oder a status certificate

Once you have an accepted offer, make sure you make it conditional on your lawyer reviewing the status certificate. They will look at how the corporation has been doing financially over the past few years and what they plan on doing in the future, such as major projects. You want to make sure you invest in a corporation that has a healthy reserve fund and operating fund. The reserve fund is what is sounds like. It’s a “back up” for major or unexpected projects that need to be taken care of. The operating fund covers things such as daily contracts such as lawn maintenance, snow removal, handy man and other on going contracts to keep the complex in top shape.

7.Get on the condo board!!!

Once everything explained earlier has met your expectations, this is the single most important thing I tell all my clients to do in order to have control over the expenses. You want to have a say in what goes on within the complex and corporation. As Don R. Campbell, president of the Real Estate Investment Network always says, “the condo board president and members may have little power within their own personal life and could abuse their position to ‘get their way’ to feel powerful.” You definitely do not want to be a part of a corporation with members like this. There are usually 4-5 board members per complex and every year there is a meeting for all homeowners to attend to go over upcoming projects etc. There should be a spot or more up for election each year. As part of your due diligence, ask the property manager which members are up for election and tell them you definitely want to run!

I hope this 7-step guide helped you analyze a condo town-home investment like a sophisticated investor. Once you invest in a great condo corporation, it’s also a good strategy to keep buying properties within that complex. You have already done the homework and the more units you own, the more votes and the more say you will have in decision making. If you’re looking to expand your single-family investment portfolio in KW/Cambridge, feel free to contact me anytime! Visit my website and see me renovate properties for clients and watch video testimonials. I look forward to helping you achieve your goals!

Mat Piche

RE/MAX Real Estate Centre

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