Years ago, during my 1st year as President of a 44-unit townhouse complex, an Owner asked me “What are you doing to reduce condo fees?”. My answer was “Nothing. The most we can do is find competitive companies that provide the same quality of work at a lower price.”
I was wrong, that’s not the only thing we can do. As individuals, partners, or workforces we save for retirement, amassing capital and planning to withdraw it modestly over time. Why is it then, that such financial planning within our Condominium sector is neglected? We know how much we want today; our Reserve tells us how much we’ll need tomorrow. Let’s start modeling a plan.
For an example, Let’s use $250,000.00 as our Annual Budget and 4% as a Rate of Return.
When we divide the Annual Budget by a Rate of Return (250,000 / 0.04), we get $6,250,000.00.
This is the amount required to have invested that will earn the Annual Budget from a 4% Return.
A lower Rate of Return will result in a higher amount required in the Portfolio and vice-versa. Alberta Condominium investing must adhere to Schedule 2 within the Condominium Property Regulation, and I urge you to seek professional advice before investing Corporate funds.
Why aren’t we acknowledging this? Neglecting this because we plan life in a condominium as a short-term steppingstone is not profound. It negates rational investing, especially for those with greater financial literacy. It’s still YOUR home, with OUR capital on the books, and you get to include those financial records when selling your property! We need financial amenities.
If we think the only tools for our Boards are a Budget, Reserve Fund, and Special Assessments -we’re only contributing to the system that continuously perpetuates a demand for future increases. Nobody is coming to pick up my garbage for free, but at roughly $800 a month/$9,600 a year, building a portfolio of $250,000.00 earning 4% negates that expense… or maybe we start with the $90.00 we pay annually to certify the fire hydrant on site. We’ll only need $2,250.00 invested with 4% return.
Add on our DVCA testing with a conservative compound and we need roughly $25,000 to be “Compliance Free”. Sounds like something we could add as an amenity when listing our homes. I’ve spoken with the Calgary Real Estate Board (CREB) and the Canadian Real Estate Association (CREA). The list of “amenities” associated to condominium contributions is filled in by the Realtor selling the asset and the Owner of the asset, not the Corporation.
Financial plans add value without adding square footage.
Inflation is the future concern and dominant factor for our budget lines increasing year after year. We can use our past inflationary rate and make assumptions on future horizons. We do this within our Reserve Fund Studies; thus, having a Financial Plan is the next step fiduciarily.
We need a paradigm shift to financially plan the elimination of condo fees.
This requires an Actuarial Horizon with funding objectives that not only factor the overall budget inflation amount, but each line within our budgets prudently as goals or milestone. Adding this to our AGM discussions much like an Auditors report is a critical course of action that provides transparency to Owners. Accruing monies within Condominium exclusive Mutual Funds adhering to Schedule 2, in governance with The Alberta Securities Commission (ASC) also provides a substantial pool of funds supporting our economy, provincially and nationally.