It is practical to buy and invest in a condo. The perks and amenities that you can get in living in a high-rise are rewarding. It’s a good investment, whether you’re seeking a cosy place to stay or a family seeking comfort in the heart of the city.
There are many considerations when it comes to buying a condo in Toronto. One thing that you should consider is the reserve fund of a condo. What exactly is this, and how can this impact your purchase decision? Keep on reading to find out more.
What to Know about a Reserve Fund
As the name suggests, it involves money being reserved in a fund for future use. Condo owners shell out money monthly for maintenance fees, which then goes into a reserve fund set aside by the condo corporation.
This fund is then used to pay essential things, such as a new roofing system to be installed and repairs to common areas, such as the elevator or lobby. Condo corporations ensure they have a reserve fund for any expenses that come up either planned or unplanned. They need to make sure as well that they have an adequate buffer for other short-term or long-term needs for the condo properties.
What to Consider in a Reserve Fund
If you’re in the process of purchasing a condo, it’s best to see the “status certificate” for the condo. This document includes details about the reserve fund that you ought to know so that you and your lawyer can assess whether the condo is being run properly. With a reserve fund in place, the goal is for you not to get caught having to pay for a big repair along the way. It can be quite alarming if there’s no money set aside in the condo’s reserve fund. Here’s what to look for:
- The amount of money: The older the condos are, the larger the reserve funds. This makes sense, as older condos will likely need more repairs. That said, check to ensure the directors have made a statement indicating they’re satisfied with the amount of money in the reserve.
- Inflation: Inflation should be deemed with the utmost consideration. Make sure that the fund is increasing by a few percent every year. Chances are, prices do increase for any needed outlays.
- Cash flow: In most cases, the condo status certificate includes an engineering report on expected expenses and maintenance requirements, be it short-term or long-term. Check to see if there’s enough to pay for all these items.
- Shortfalls: When you are on the verge of deciding to buy a condo, check for any shortfalls before proceeding. It will be a red flag if there’s a vast difference between the recommended amount of the reserve fund and what underlying condo problems are there. Be highly critical in calculating how much will be your share or contribution.
- Special assessments: Finally, consider any “special assessments” as another red flag. Special assessments are unanticipated expenses that won’t be reflected in the current monthly condo fee, which will end up with you paying for them.
Ultimately, it makes sense why condo corporations have a monthly maintenance fee for the reserved fund. However, it’s still wise to check the “status certificate” and assess the details included.
In the end, you want to make sure that there are enough reserve funds and this can be used for future condo expenses. Before you buy a condo, check the reserve fund.
If you are looking to buy real estate in Toronto, Zumin Real Estate will be able to help you. Contact us now for a consultation!