This month, I will finish the maintenance fee analysis we started in April by taking a closer look at a condo’s reserve fund. The hope is that we can uncover the condo unicorn which features low monthly maintenance fees per square foot; low operating costs per unit; a history of low operating cost increases and a healthy reserve fund per unit.
To recap the past 2 months, I reviewed 30 status certificates for Toronto condominium apartments built between 1986-2013 and determined that:
- The average adjusted maintenance fees per sf/mth is $0.64.
- Utilities account for the largest proportion of operating costs (~40% of total operating costs)
- The average annual operating cost per unit is ~$5,800.
- The average increase in total operating costs is ~4.1%.
As you may recall, the maintenance fee is split into operating costs which are related to ongoing building maintenance, management and repair of the day-to-day operations. These include: utilities, insurance, electrical, mechanical, grounds keeping, building safety, amenities, common elements upkeep, general and administrative costs.
The other portion of the maintenance fee is the reserve fund. The Condominium Act 1998 requires all condos to have a separate reserve fund. The reserve fund is used for major repairs, replacements and renovations of common elements. A reserve fund study is required every 3 years to determine how much money is required for future capital projects. Unlike operating costs which increase on average 4.1% per year, I’ve seen contributions to the reserve fund increase by over 25% in some years.
The status certificate confirms the amount of the reserve fund. For the condos I studied, the reserve fund ranged from $200,000 to $4,250,000. While it’s nice to know what the reserve fund is, it’s more important to know how much that translates to per unit and how much each owner will need to contribute. The following is a summary of the reserve fund per units for the same 30 condos I reviewed:
The Notice of Funding of the Reserve Fund is included in the status certificate documentation and provides the average contribution per unit per month to the reserve fund and forecasts future funding requirements. The forecast is up to 30 years but I find that the next 5 years to be most relevant since a revised reserve fund study is conducted every 3 years.
The following table summarizes the average contribution per unit per month for the 30 condos I reviewed.
I often get asked why are maintenance fees so high? We can now answer definitively because we saw the composition of operating costs which averaged $472/month (May 2019 newsletter). Now adding $175/month* for the reserve fund contribution results in $647/month for an average monthly maintenance fee, which is a familiar figure for most condo owners.
One ratio I find helpful is dividing the total reserve fund/unit and by the operating cost/unit. This metric indicates whether a condo has relatively high proportion of funds for future capital projects relative to current day-to-day operating costs. The higher the ratio, the less likely that there will be future special assessments.
As expected, there’s a large range whereby some condos have less than a dollar (0.5) for future funding relative to current operating costs while others have 2x their operating costs in their reserve fund.
To answer the question, “Is this a good condo?” there’s no single metric that can address this. A low maintenance fee today may face significant increases in the near future. A condo with a large reserve fund may be on verge of a large renovation and increasing operating costs. A comprehensive review needs to look at all the metrics I’ve covered over the past 3 months to assess how a condo has managed their past, current and future obligations.
So going back to the main question, is there a condo unicorn? I’ll give you a clue, coincidentally, it’s close to the church where I attend (https://www.gracetoronto.ca/). Drop me a line and I’ll let you know where it is or how your condo compares.
3 Things I’m Noodling Through:
- I’ve been following the Raptors for a long time. Like many of you, I’m so excited that we are in the finals and (at time of writing), we are up 3-2 in the series. As much as enjoy following, I’m ready for the Raptors to lock this up and end the season. I have put on a lot of ‘Raptor weight’ with all the late night watching, snacking and drinking. While I’m not a health diet pro, I’m sure cashing in on free McDonald’s fries and eating a bowl of ice cream at 1:00am are not keys to a trim waistline.
- I recently lost my car cellphone holder. It was a Breffo (kind of like a bendy Gumby). I didn’t realize this sub-$20 gadget has been so helpful in making my car into a functioning office. The style and size I grew fond of has been difficult to find. I also liked that it could fit into my car vent. Do you have any great car phone holders that you love and would recommend?
- I attended Canada’s largest real estate convention where the key note speaker Joe Berridge outlined how Toronto has risen from a second tier city to become one of the world’s leading cities. The keys drivers to this ascendancy were: i) immigration; ii) Pearson International Airport; iii) innovation; iv) financial services; and v) housing. I think one feature he missed is entertainment namely Toronto has franchises in 4 of the major sports leagues (MLB, NBA, NHL, MLS) and it’s clear how the current Raptors run has helped bring this city together.
As for the May 2019 Toronto real estate results, Price growth was driven by the condominium apartment and townhouse market segments. Feel free to drop me a line if you’d like to know more specifics in your neighborhood.
There’s a famous television show from the 50’s and 60’s called Dragnet. It centres on the adventures of a no-nonsense cop who famously tells witnesses to give him, “Just the facts, ma’am. Just the facts.”
He did that because facts were hard to get, yet very important to his job.These days, we live in a sea of information. “Google” just about any topic and you’ll get thousands of search results. There’s no shortage of information. But, it can still be difficult to get to the facts.
Take real estate, for example. There’s a lot of news available about what’s happening in the national real estate market, current overall housing prices, the best time to make a move, and so forth.
It can all be overwhelming. But, which reports can you rely on? That’s where I can help. As a real estate professional, I’m dedicated to providing my clients with the facts they need to make important decisions about real estate – facts that are backed by comprehensive data and experienced analysis of the local market.
Give me a call to discuss the real estate facts you need.