Wednesday, March 28, 2007
The Trouble with Condos
I've never been a big fan of condo ownership. There's something about it that conflicts with the pride-full "man's home is his castle" thing. (I apologize for the gender-bias in this statement)
I have a friend who bought a two-bed, one-bath unit around 3.5 years ago. It had been a previous rental unit and had been sitting on the market for a while as it didn't show well. Of course, this was before the crazy market times of 2004/05. It's 1050SF and two levels. He paid $107K in 2002. His purchase was one of the true own for less than you rent situations.
Fast forward to this year. His assessment came in at $224K. He's invested about $15K into making his home his castle. He's very creative and has done a fantastic job of painting, installing new floors and turning a rather drab unit into a bright, arts and crafts-style home.
In the span of his ownership, his monthly assessment has increased from $178/month to $278/month. The reasoning behind the increase: new fences and decks for all units. Two months ago, the strata sent notices to all residents that they planned to go ahead with a building remediation. This building is not a leaky condo. It was built in the mid-70s.
The reason for the remediation? There are two buildings directly across the street. They have units selling in them for high $280Ks to low $300K. The building my friend lives in has never had a unit sell for over $235K. The building is centrally located on a busy street. The strata believes that re-mediating the outside from stucco to sturdy-board and updating the common spaces will increase the value of each unit upwards of $50K each and bring them in line with their neighbours. The per unit charge will be approximately $30K. There are, of course , other condos within a two block radius that are selling for less than this one; my friend feels the strata is ignoring this fact.
My friend is heart broken. He loves his home, though hasn't planned to stay there forever. He has a financial investment in it, but his emotional investment is greater. He recognizes that he has done very well financially in his 'investment' and is grateful that the market has cooperated. He is very aware of current market trends and is skeptical of the promised gains in his unit if the strata goes ahead with its planned work.
Should he sell? Two other units have been put up for sale since the announcement. Both have asking prices between $219K and $230K. My friend feels his should get more because he's confident that it will show better, but things aren't moving too quickly in the condo market right now.
His realtor has been by to discuss and seems to think he'll be fine, but has cautioned him that in order to move his unit he may have to eat the $30K remediation charge. If he's lucky, he'll find someone who loves his unit so much they agree to pay half the charge and give him full price. She stated that there is very little likelihood of a bidding war and that he should price his place at $229K, $5K above assessment. He's looked around and isn't happy with what he's seen in similar price ranges and isn't keen to go back to renting either.
He's afraid that if he doesn't sell soon, he'll be stuck with the extra $30K debt, which will be about $300/month to his mortgage, and a declining asset value as the condo market flattens and dips. He's not happy with the strata corporation and feels they haven't done due diligence with their work on this project; he has lingering anger regarding the high monthly assessment and the lack of transparency regarding its justification. If they go ahead with this work, combining that charge with the increase in his monthly assessment, his payments will have almost doubled in a short span of 4 years.
He's spoken to neighbours, but many do not feel the same and are happy to remortgage their property to do the work. It's a big strata and he doesn't feel confident that his efforts to change people's minds will go over well. He'd rather not rock that boat.
I'll leave this open to every one's input. My friend will be reading this, though is unlikely to respond to comments. He's just wanting to 'poll' public opinion foremost. Any advice will be taken with a large helping of salt. He's hoping that some insights will help him to see things in a different light.