The Challenge with Investing in Condos Part 1

Sometimes a deal looks too good to be true but you're curious anyway. That is how we felt when we spotted this 3 bedroom 2 bathroom Port Moody townhome for under $200,000. In this area, small condos are hard to find for under $300,000 so to find a townhome with so much space for such a low price seemed like a deal that was too good to be true. But the pictures looked really nice so we went to check it out.

It was a for sale by owner property so we thought there might be an opportunity to put a creative deal together. But we also expected the property to be in pretty rough shape.

When we arrived we were pleasantly surprised at the well kept nature of the complex and the lovely grounds, and we were even more impressed with the interior of the unit. It had been redone and it looked amazing. We just couldn't believe it was going to sell for under $200,000 so we started asking lots and lots of questions. We asked questions we knew the answers to, because sometimes that can lead to other questions. We asked questions we really didn't care about the answers to because you never know when you might learn something interesting. And bit by bit a story began to form ... and the story was not a good one.

The strata council (strata is the same as condo in BC) had been horribly run over the past decade. Full of people with no business experience or expertise in how a large strata should run, some really bad decisions had been made. The worst two decisions were allowing the former property management company to continue to oversee renovations and improvements of the property even after they had demonstrated a lack of capability to do so. Then, when they finally fired that company and hired a new one, the council voted to increase strata fees by $100 each month instead of placing a single levy on each unit for the money needed to complete the renovation.

The result was a new window here and there throughout the 100+ units. There was a partially redone fence on one unit, and a totally redone deck and fence on another.

In other words, the renovations were years away from completion and no one unit was fully renovated. The costs were skyrocketing and nobody was trying to (or able to) resolve the growing issue.

As a result, this property, that seemed cheap on the surface was actually very likely to be a money pit. Strata fees had already doubled in 2 years, and there was no end in site to those increases. Neighbouring town homes that were very comparable were selling for $100,000 more but had half the strata fees and the strata didn't have any major issues.

And this isn't our only example of how a condo investment can go wrong. Dave had a coaching call with a woman in New Jersey a few months ago that couldn't sell her condo because of issues with the condo council. And many of the people we know that buy condos for investments find themselves being outvoted at meetings when it comes time to decide if units can be rented out or not ... leaving them with their hands tied when it comes time to put new tenants in their property.