Before you "go condo" do your research
Now that the kids have grown up and moved, you're probably giving some thought to downsizing from your family home. And there's a good chance that you're looking at a more economical and easily maintained condominium. The condo life can indeed be a great idea, with living becoming simpler and probably cheaper too.

But before you put the "for sale" sign up and start shopping around, you need to consider a few pitfalls. First and foremost, there's the issue of cost – more specifically, the future maintenance and replacement costs that are supposed to be covered by the condominium's reserve fund, as required by law.

In Ontario, the Condominium Act allows developers to initially deposit 10 per cent of the first year's estimated operating budget into the reserve fund. This Act also requires the condominium corporation to conduct a reserve-fund study in the first year of operation, and if there's a shortfall, the condo residents are required to make up any difference.

But that initial deposit is likely to be woefully inadequate. "The first year's reserve process is deeply flawed," says John Warren, a chartered accountant and partner at Adams & Miles LLP in Toronto. "That 10 per cent figure is not right – you need a lot more than that."

Double your reserves
Sally Thompson, vice-president of Halsall Associates Ltd., Toronto-based engineering consultants, agrees. "That 10 per cent is just plain low – they goofed when they created the Act. Once the study is done, most new condominiums end up needing between 20 to 25 per cent." The net result is that new condo buyers often end up paying more than double the initial estimate for the reserve-fund component of their monthly fees!

"A good rule of thumb is that you can expect to pay about $1,000 per unit per year toward the reserve fund; add another $200 to $300 per unit if there are recreation facilities," says Thompson. "But in many cases, the developers are contributing only $300 for the first year, and that's ridiculous. If you own any kind of house, you know that you can't maintain it for $300 a year!"

Accordingly, if you are considering a brand-new condo, take a very close look at the reserve fund. And if it's a used condo, take an even closer look. "Because you can't get a building inspection on a condo, the reserve fund study is very important. It's essentially a long-range capital budget outlining major repairs in the future," explains Warren.

An engineering firm is contracted to survey the common elements and estimate when they will need to be repaired or replaced. These estimates cover a 30-year period and are adjusted for interest and inflation rates. Based on these estimates, a payment schedule is included to build up the reserve fund to cover these future costs.

Warren says you should ask lots of questions: Does the condo have a history of special assessments? Is there an operating surplus to cover unexpected expenses? There should be a reasonable amount in the bank, equal to one or two months of common element fees, to cover emergencies. Do the financial statements show a deficit? If so, then the condo is in a financially precarious state.

"Most importantly, is there a current reserve fund study, and are its recommendations being followed?" continues Warren. "The Condominium Act stipulates that a reserve fund study must be updated every three years. It also stipulates that condos have until 2014 to have their reserve funds fully funded."


Page 1 of 4 -- On page 2, learn what lifestyle changes you may face when downsizing from a house into a condominium.If the building is an older one, you also need to take a closer look at the facilities themselves. Do you see signs of deterioration? Are the hall carpets and foyer in good shape? Is the underground parking (if any) clean and dry? Is the plumbing drip- or leak-free? If you see anything slightly amiss, ask even more questions. "The cost of these repairs can be deceiving," says Thompson. "And bear in mind that in an older building, all those expensive jobs are that much closer to needing to be done."

How much do the utilities cost? "Many condos have electric heating, and that can be expensive," says Warren, adding that condo units in Ontario are all slated to go onto sub-metered systems by 2010. "And all your expenses are going to rise by at least the rate of inflation, usually more. Over a three-year time frame, maintenance fees in new condominiums can typically rise 50 per cent."

And, while it may be tempting to buy a condo with all the possible amenities – pool and spa, gymnasium, rooftop garden – Warren says that you should think twice about it. "Even if you don't use them, you'll still pay for them."

Check out management
Warren also suggests that you consider the reputation of the builder, as well as the quality of the condominium's management. "How long have they been there, and how many times has the management changed? If they're changing often, that's not a sign of a healthy condominium corporation," warns Warren. Changing management can also be a sign of problems with the condo management committee, which is made up of elected tenants. And things could get much worse, so nose around and ask some of the tenants whether they feel the property is being run well. Warren cautions that management problems can adversely affect your own unit's value. "You have to bear in mind that unlike a house, you can't maintain the value of your property by yourself."

Lifestyle considerations
Former house dwellers may find that the condo lifestyle isn't what they had in mind. "Lifestyle issues can become the most contentious for people who aren't prepared for the change," says Warren. "What you're going to be doing, in effect, is living in an apartment with noises from the neighbours. There's a whole series of compromises that must be made."

For example, even within your own unit, pets may not be allowed, curtains visible from outside may have to be a certain colour and there may be restrictions on what you can do on your balcony. You probably won't be allowed to barbecue, and you may even be prohibited from putting Christmas decorations on the outside of your front door. Adds Thompson: "In older buildings, any repair work can be obtrusive too, especially for retirees who aren't away at work during the day."

"It's a restrictive lifestyle," says Warren. "The condo bylaws, rules and regulations can be onerous. There can be 60 to 70 to 80 pages of them, and if you really want to talk to a lawyer who specializes in condos, you might have to pay $2,000 to do so. Most people don't, and then they're surprised at what they've bought into. It's being penny-wise and pound foolish."

Of course, there can be advantages to living in a condo. But you have to look at all aspects of the deal, including, of course, location: "It is still the prime determinant of value for any kind of real estate," says Warren. Thompson goes a bit further: "You have to be realistic about the reserves – don't be deceived by the initial allowances. In fact, my advice is not to buy a new condo but rather look for one that's a year or two old so the fee structure is established."


Page 2 of 4 -- Is living with extended family right for you? Read all about one family's experience on page 3.

Living together – separately!
Other housing options may be better suited to your tastes and needs. These include the intergenerational home – where children and their elderly parents live under the same roof but in separate apartments – and the duplex.

Intergenerational homes
This living concept has long been favoured by some entrepreneurs, and the formula continues to gain in popularity – for good reason! As well as fostering closer family ties and letting you enjoy an exchange of favours and a financial partnership, the intergenerational home is the obvious choice for people intent on growing old among loved ones while at the same time ensuring their own safety.

"We're really happy here," says Lucie, who shares a single-family home with her daughter, her son-in-law and their young son. For the last three years, Lucie has lived in a large one-bedroom apartment attached to the couple's home. She has her own entrance and a terrace at the back. "For starters," says Lucie, "you have to get along [with each other] to choose this type of life. Our apartments may be attached, but my home is my home. We keep the doors closed, we announce ourselves, we call one another first, and we knock before entering. On weekends, I invite them to supper, but they're free to accept or decline."

The importance of rules
Successful intergenerational cohabitation depends on the establishment of clear rules. Before you opt for shared living, it's important to discuss the details with your future "roommates": Which spaces are private and which are shared? What are the visiting hours? Will you be co-owners? Even though you're living with family members, we strongly suggest that you establish rules and write them down to minimize the frustration sometimes involved in sharing a residential space.

Having your adult children nearby and being able to get help when it's needed may reassure some, but for others it can quickly become a ball and chain if privacy is not respected. Shared living thus requires preparation and caution. Some municipalities offer property-tax credits to people who transform a single family home into an intergenerational property – support that's always welcome when you're investing in a relatively costly home makeover.

Note that some tax credits and grants can be applied to the purchase or transformation of a home; the Canada Mortgage and Housing Corporation (CMHC) offers the Homeowner Residential Rehabilitation Assistance Program (Homeowner RRAP) in conjunction with the mortgage and housing corporations in each province.


Page 3 of 4 -- Explore the option of moving to a retirement villa, or adult lifetsyle community on page 4.
Duplex life
There are numerous advantages to purchasing a duplex or a semi-detached home, not the least of which are privacy and proximity. Suzanne and her husband live on the second floor of a duplex they co-own with their daughter, who occupies the ground floor. "We lend one another a hand. My husband helps with the maintenance, my daughter drives me to my medical appointments and my son-in-law does small jobs in the apartment. With this arrangement, we've been able to watch our grandchildren grow up. We've been here for 24 years, and we hope to stay for the rest of our lives."

The duplex option lets you stay close to your children without having to comply with the municipal requirements concerning intergenerational homes. And in the event that this type of arrangement no longer suits you, you can always rent out your half or sell it – an option that many municipalities do not permit in the case of intergenerational homes.

Adult lifestyle community
People who intend on being sole owners while still enjoying a sense of community may want to consider the concept of adult villages. They offer autonomy, comfort and, perhaps most importantly, peace and quiet.

The pleasures of freedom
Called "gated communities" or "active-adult communities" in Florida and several other American states, villages for pre-retired or retired persons 50 and over are an increasingly popular option here in Canada as well.

Comprised of one-storey homes, either detached or semi-detached, these communities let you own the bungalows, but staff are hired to provide lawn care, grounds keeping and snow removal, and to maintain a community centre.

As well as help you feel at home, this concept absolves you of the onerous task of performing outdoor work and allows you to make the most of any activities specially tailored to villagers' needs. "I love this arrangement!" says Theresa, who has lived in this type of community since 2004. "We own the space we live in, and we also take part in the activities offered (for instance, I give Spanish lessons). And there are often theme parties – oyster or lobster dinners, large gatherings with the grandchildren, that sort of thing."

While this type of living arrangement is ideal for some, others may find it too restrictive – some communities don't allow fences, sheds or clotheslines. For this reason, it's important to find out about the regulations in force before you decide to move there. And, on top of the often steep purchase price, there are also monthly maintenance costs to consider.

Page 4 of 4 -- Looking to downsize? Be sure to check out our advice on condo-living
on page 1.