A safe investment?
“Say hello to the new face of wealth inequality in Toronto, where owning a back yard is a pass to riches, and owning a balcony is a pass to condo fees.”
—Daniel Tencer

They can be, especially in the newer buildings that were well built and are in good locations.

However, this is not always so, especially in the long run. Buying a condo is like buying a stock in a company. There are the right times to buy and the right times to sell; just ask anyone who owned stock in Nortel or RIM.

With some condos, there never was a good time to buy.

Having a majority of owners who resist fee increases can be a serious issue. Retirees on a fixed income who underestimated the cost of condo living could become hard pressed when faced with rising condo fees and special assessments. Young couples can run into trouble if one of them loses their job.

Investors seldom want any fee increases as most have no long-term interest in the building. They are there to make a buck and strive to maintain a positive cash-flow.
Pick the wrong building, or buy at the wrong time, and instead of earning equity on your condo, you could find that your unit is decreasing in value. In a worse-case situation, the city inspectors issue expensive work orders, CMHC or the two private mortgage insurers will not insure mortgages, the common elements require millions of dollars in repairs—of which you are responsible to pay your portion—and that there is a risk of you being driven into bankruptcy.

Everyone is affected
In a neighbourhood of freehold houses, if a few homeowners run into financial trouble, their individual difficulties does little harm to the value of their neighbours' homes.

However condos are different. Condominiums are the most volatile of real-estate products due to its co-operative structure and its dependence on the financial stability of all of its owners.

The ongoing value of every unit in a condo corporation is directly tied to the value of all the other units. Everything depends on the owners electing competent directors to govern their condo corporation and on all of the owners paying their mortgages, monthly maintenance expenses and special assessments when they become due.

Not cheap housing
Condos are marketed as an affordable alternatives to traditional housing. This is not so. It is a mistake to think of condos as cheap housing.

Financially weak unit owners are hammered when a recession hits. When they fail to pay their monthly fees and/or mortgages, the banks or the condo corporation will put a lien on their units and they will be sold by power of sale.

In the worse-cases, condos have become financial nightmares, especially for low-income buyers who bought with low down payments. Thousands of condo owners had their savings wiped out by special assessments, ever-rising condo fees and the corporation taking out large loans. They have seen their property values cut in half or more. Hundreds of others have lost their homes and went into personal bankruptcy.

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