Your Condo Budget: A Guide for the Unenlightened

Budgets can be intimidating documents, but they are a fairly critical part of your ownership experience. After all, the Corporation doesn’t have a credit card, so it’s important to accurately plan for next year’s expenses because no one likes getting that Special Assessment letter asking for more money.

Although the formats and contents of the budget will vary greatly from one property to another, we will address the most basic areas, common to all condominiums. The detailed line items that remain a mystery to you after this brief study should be discussed with your Board Treasurer or your Condo Manager.

The annual budget of any condo corporation is an operating budget. This means that it represents the Plan of the expected costs to operate the property for the next year. Planning is based on budget-to-actual comparisons for the current (and prior) year, as well as estimates of any increases or decreases in expenses. Careful review and thorough investigation, combined with some knowledge of your property and / or adequate experience with similar properties, will produce a relatively accurate reflection of these expenses.

Annual figures, even for a single-family home, can be intimidating: When you look at the figures for multiple units over the course of 12 months, they may seem staggering, but fear not! These costs are split across all units (generally based on square footage) and paid monthly, wow! So once you’ve established what the budget is and how it’s paid for, we’ll need to address the budget components (which will also help you understand how you can help save money on fees in the future).

Operating budget expenditures generally involve several categories, and for the sake of simplicity, we’ll only look at a few basic summaries, rather than detailed descriptions:

Administration expenses– This category plans expenses such as Management Company fees, auditor’s fees, insurance premiums, bank charges, and things like photocopying and shipping costs.

Public services and contracts– Pretty self-explanatory, this section covers common utility costs (depending on your property, this could simply be for irrigation water and parking lot lights OR it could include heat, water, and even electricity and cable TV for each unit), as well as contracted services such as snow removal, boiler maintenance, landscaping, etc.

Maintenance expenses– These costs will be your planned expenses for items such as eaves repairs, fence repairs, caulking ceiling vents, hallway carpet cleaning, elevator repairs, etc., again, depending on your property. These expenses are for regular wear / aging problems and preventive maintenance items; Major replacement costs are not included, which brings us to the final category:

Contribution to the reserve fund: based on the Study of the Corporation’s Reserve Fund and the subsequent Asset Management Plan adopted by the Board, this fund is used for the long-term planning of major component replacements, according to the common life cycle, the age and current condition of these components. If the shingles are to last 20 years and the asphalt is to last 15 years, the Reserve Fund must have contributions during this period (or the remainder), equal to the expected cost (including provisions for interest income and inflation factors) at the time the replacements are due. If this was not done, all owners would face a special assessment in year 15 for asphalt replacement and another assessment in year 20 to replace shingles. By contributing smaller amounts over time in anticipation of these expenses, the funds will be available to get the job done, without each owner writing a check for several thousand dollars.

Let me ramble on about an unscheduled educational opportunity at this point: We often hear owners ask, “Why should I keep putting money into this fund if I’m not even going to own my unit in 15 years?” Good question! The short answer is: Property value. The longest explanation involves a potential buyer’s concern that without this prudent financial planning, they will buy not just a unit, but the likelihood of substantial debt, who wants to take ownership of this large investment and receive a notice of a special appraisal. next month? To maintain the value of everyone’s units, it is important to show fiscal responsibility, so that no one faces this situation at any time.

And now, back to our regularly scheduled lesson on budgeting: the bottom line is that it costs money to own the property (just think of the costs of a single family home, multiplied by many houses and then shared by all).

The real lesson of all this? The more cost-conscious owners are, the more time everyone can volunteer, contribute materials, help with tasks … the less it costs the Corporation. This, in turn, reduces costs for everyone and voila! Your monthly payments are not subject to uncomfortable increases! I’m pointing this out because I still hear people say “they’ve increased our rates again this year so I’m going to take longer showers and leave the lights on all day so my money’s worth.” When I ask them who they think “they” are, many owners will say “the Board.” For your information: “the Board” is made up of people who also own units and also pay monthly fees; They don’t want any more raises from someone else.

Make sure you know what your budget items are for, what the costs are, and take the time to compare this year’s figures with last year’s; This will help you understand why “they” are raising their rates; which brings us to a final point:

It is extremely rare for costs to go down. Utilities will fluctuate, from time to time we will see lower snow removal costs than expected, sometimes we can find a better price on repairs, but overall the price of almost everything keeps going up (at least remember your property gets bigger every year!). We never recommend reducing a budget (read: rates) and rarely do we notice that rates can stay at the same rate as the previous year (without any sacrifice); this practice will likely create a financial deficit, which is much more difficult to resolve. Resolve that if a corresponding modest increase were implemented each year.

As a current or prospective condo owner, it is important to understand that while no one likes to pay more, it is easier to keep up with expenses and far better for your resale value than having unrealistically low fees and dealing with a special assessment, which, even if you have this money in your bank account, never has a good connotation for potential buyers and therefore negatively affects the value of your property.