Your Condo Budget: A Guide for the Ignorant

Estimates can be intimidating documents, but they are a pretty critical part of your homeownership experience. After all, the Corporation doesn’t have a credit card, so it’s important to accurately plan for next year’s spending because no one likes getting that special appraisal letter asking for more money.

Although budget formats and contents will vary greatly from property to property, we will address the most basic areas common to all condominiums. Itemized items that are still a mystery to you after this brief study should be discussed with your Board Treasurer or Condominium Manager.

The annual budget of any condominium corporation is an operating budget. This means that it represents the Plan’s anticipated costs to operate the property for the coming 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 spending. Careful review and extensive research, combined with some knowledge of your property and/or adequate experience with similar properties, will produce a relatively accurate reflection of these expenses.

Annual numbers, even for a single-family home, can be intimidating – when you look at the numbers for multiple units over the course of 12 months, they can seem staggering – but fear not! These costs are divided among all units (usually based on square footage) and paid monthly, ugh! So, having established what the budget is and how it is paid, we will need to address the components of the budget (which will also help you understand how it can help you save money on fees in the future).

Operating budget expenses typically involve several categories, and for the sake of simplicity, we will only look at some basic summaries, rather than detailed descriptions:

Administration expenses: This category provides for expenses such as Management Company fees, Auditor fees, insurance premiums, bank charges and things like photocopying and postage.

Utilities and Contracts– Quite 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 expense– These costs will be the planned expense for items such as eave repairs, fence repairs, caulking ceiling vents, hallway carpet cleaning, elevator repairs, etc., again depending on your property. These expenses are for regular wear and aging issues and preventative maintenance items; major replacement costs are not included, which brings us to the final category:

Contribution to the Reserve Fund: Based on the Corporation’s Reserve Fund Study and subsequent Asset Management Plan adopted by the Board, this fund is used for long-term planning of major component replacements, based on 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 (or the remainder) of the time period, equal to the expected cost (including allowances for interest income and interest factors). inflation) at the time replacements are due. If this was not done, each homeowner would face a special assessment in year 15 to replace the asphalt and another assessment in year 20 to replace the 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 digress on an unscheduled educational opportunity at this point: We often hear owners ask, “Why should I keep putting money into this fund when I’m not even going to own my unit for 15 years?” Good question! The short answer is: property value. The longer explanation involves a potential buyer’s concern that, without this prudent financial planning, they will purchase not just a unit, but the likelihood of substantial debt: who wants to take possession of this large investment and receive notice of an appraisal? special 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 (just think of the costs of a single-family house, multiplied by many houses, and then shared by all).

The real lesson in all this? The more cost conscious owners are, the more time everyone can volunteer, contribute materials, help with chores…the less it costs the Corporation. This, in turn, lowers costs for everyone and voila! Your monthly installments are not subject to uncomfortable increases! I point this out because I still hear people say “they increased our rates again this year, so I’m going to take longer showers and leave the lights on all day to get my money’s worth”! When I ask who they think “they” are, many owners will say “the Board” – FYI: “the Board” means people who also own units and also pay monthly fees – they don’t want raises any more than anyone else.

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

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

As a current or potential condo owner, it’s important to understand that while no one likes to pay more, it’s easier to keep up with expenses, and much better for your resale value, than having rates that are too low and unrealistic. . You will face 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.