Are Condo Fees a Waste of Money?

To truly understand if paying condo fees makes sense, you need to appreciate where the money actually goes.

I'll never be ashamed to admit that I'm not a very handy person. I often joke that when wifey and I got married, she brought the tools with her. And I'm only slightly embarrassed by it : ) My father in-law is probably one of the most handy people I know. He can fix anything. And I'm quite sure he rolls his eyes anytime I tell him about how proud I am of myself for doing something as simple as changing a light fixture at one of my listings.

But it's not my fault. I'm quite certain that one of the reasons I'm not very handy is because I grew up in a house. Hear me out. Every single weekend growing up, when all I wanted to do was watch Hulk Hogan and WWF wrestling, my dad would be begging me to help him fix something around the house. The gutters needed cleaning. The leaves needed raking. The roof was leaking again. There was a weird smell in the basement. I can't remember a weekend, especially in the summer, where there wasn't something to fix or repair around out outside the house. And I absolutely hated it. Truthfully, it turned me off of ever wanting to own a house of my own, and I have a mental block now whenever it comes to trying to do even the most simple handy things. Which is why, as soon as I was a "grown up", my first, second, third (and likely any future property I own) was a condo.

Without a doubt, the most common complaint from real estate buyers when it comes to condos is "I don't want to waste money on condo fees". It's usually not the size of the space that's most at issue. Or the lack of a large outdoor space. It's the condo fees. People hate paying them. But I'm here to tell you that they're worth it if you put them into context.

As of writing this post, I sit on the board of two condo corporations in downtown Toronto, both as Treasurer. One for the condo where I currently live, and the other for a condo building where I used to live but still own in. And I see where literally every single dollar gets spent at both. I scrutinize every single annual budget, I approve every single contract, and I know first-hand how expensive it is to run a building. So I'm here to break it down for you to show you where those condo fees go and why they cost what they cost.

I'm going to use a real-world example of a condo building in downtown Toronto so you can see where the money really goes. This building is one that I know very well, with just over 200 suites. They have a full-time concierge, an underground parking garage, two elevators, a gym, party room, and all utilities (hydro, water, heat) are included in the condo fees (ie, there is no separately utility charge for residents).

Here's where the condo fees go on an annual basis:

1 - Reserve Fund Contribution: This is by far the single largest line item in almost any condo building in Toronto. This is a statutory required contribution to the condo corporation's long-term "savings account" that must be set aside each year to account for future "major repairs and replacements" of common elements in the building. Things like roof repairs, garage repairs, elevators, hallways, building pipes, the lobby, amenities, building HVAC equipment... anything you can think of that will eventually breakdown or need repairs must be split out, item by item, and amortized over the useful life of that item. This is called the Reserve Fund Study and that study must be updated every three years, by a licensed engineer. In most condos, this single reserve fund contribution line item can account for around 25-35% of a condo corporation's entire budget. Without this, your building just wouldn't have the money to fix, repair, or replace things around the building when they inevitably need to be.

In my condo example above, that amount is just about $530,000/year for the building.

2 - Utilities: The next largest line item in most condos is the cost of utilities. This oftentimes is not an apples-to-apples comparison between buildings as some buildings include all or most of the utilities that each individual unit consumes within the condo fees themselves (like the building we're talking about now), while almost all newer buildings meter each unit individually for hydro, water, etc so that each resident only pays for what they themselves use in their unit, and the condo corporation only pays for utilities relating to the common areas, like the hallways, lobby, gym, garage, etc. This line item would obviously be higher for buildings where utilities are included versus where they are not.

In my example above, the total utilities for the building (hydro, water, gas) is just about $390,000/year.

3 - Concierge: You know we all love getting packages delivered right to our building, with someone at the front desk to receive them, log them away, and hand them to us when we finally decide to go pick them up. Well, that service doesn't come cheap. And while I'm completely minimizing the full role of what a concierge actually does at a condo building (they do a lot of stuff you don't even see, trust me), that service is a huge perk for a lot of condo residents. To maintain a 24/7 concierge at a building, who also acts as building security, the go-to contact for on-site contractors, the lead in an emergency, and basically the face of a building for residents and visitors, it'll run you hundreds of thousands of dollars a year.

In my condo example above, the cost for 24/7 concierge runs around $270,000/year

3 - Cleaners: Do you ever wonder how condo buildings stay so clean? Who cleans the bathrooms? The gym? The lobby? The elevators? The hallways? Every condo building will have a cleaning contract with a third-party company to make sure the building stays as spotless as possible. The cost can vary depending on how many staff you need/want.

In my building example above, there is one full time cleaner on site, 7 days a week, at a cost of around $65,000/year

4 - Property management: Someone has to actually run the building. And as a volunteer board member, I can assure you that the board does not run the day-to-day operations of a condo building. The property manager does. They deal with literally everything that happens in the building, from resident complaints, to dealing with building contractors, to paying invoices, to board meetings...It's not an easy job at all. Plus, condo corporations need to have accurate accounting systems in place to track where the money is going. This also gets handled by the management company. Professional management is an absolute must for a building to actually function. The cost usually scales depending on how many units are in the building, whether or not there are additional dedicated management staff (like an administrator), and some other factors.

Add on around $120,000/year for a full-time licensed property manager, with the associated back-end accounting. But this can easily scale up to $200k/year+ depending on the building size, additional staffing requirements, etc.

5 - Contracts: Elevators need a service contract. The building HVAC needs a service contract. There is landscaping, garage cleaning, garbage removal, fire protection, window washing... Every component of a building that needs regular maintenance should be covered under a maintenance service contract with a contractor who specializes in just that.

Add it all up, and you're looking at around $125,000/year of additional service contracts to keep the building running.

6 - Insurance: Yup, your condo building needs insurance, just like any building. Fortunately, condo building insurance rates have actually been falling over the past couple years as the insurance market in Ontario has seen an increase in competition. For a while, boards would budget annual insurance premium increases of around 10%. But fortunately that trends seems to have reversed and insurance rates have come down noticeably recently.

Add around $60,000/year for building insurance for my example building above.

7 - Everything else: I won't bore you with all the nitty gritty details of where the rest of a condo corporation's budget gets spent, but here's a quick rundown - general day-to-to maintenance and repairs that don't fall under Reserve Fund expenses, random plumbing repairs, random electrical repairs, gym repairs, common area maintenance, audit and legal fees, office expenses, random mechanical repairs, snow removal, cleaning supplies... Yup, it takes a lot to maintain a building.

Tack on another $125,000/year and you've got just about everything covered.

8 - Before we tally everything up, some buildings will have a means of earning revenue from residents and/or guest to offset some of their operating expenses. Think of things like a guest suite, paid underground parking that is owned by the condo corporation, party room rentals, etc. This can vary dramatically building-to-building and not all buildings have this source of extra revenue. But it can be rather significant and a helpful bonus to the corporation (and your condo fees).

In my example building above, it works out to revenue for the corporation of around $35,000/year, which directly offsets the need to collect this amount from owners in the form on condo fees. A nice perk for sure.

So where do we end up when it's all said and done? If you were kind enough to read through all the items above, you can do the math with me. To run a condo building in downtown Toronto with just over 200 units, it'll take roughly $1,650,000/year. And where does that money come from? You guessed it. Condo fees.

Listen, I get the argument about paying condo fees. Houses don't have condo fees. But trust me, houses have fees - you just don't see them every month and they will appear out of the blue. I tell all my house buyers that they should set aside a decent amount every month for the inevitable repairs and maintenance that comes with owning a house so you don't get blindsided. Sounds kinda like condo fees to me, no? I personally think the worst part would be then having to deal with the repairs and contractors on my own. That would drive me crazy!

So there you go. It's costs a lot of money to keep a building safe, clean, and running smoothly. And that money comes directly from owners in the form of monthly condo fees. Don't like 'em? That's cool. I'm not here to try and convince you otherwise. But before you say condo fees are a waste of money, consider what they actually pay for and why they cost what they do.

And between you and me, I haven't shoveled a driveway for my entire adult life and that alone is probably enough to convince me to stay in a condo forever ;)

Have you checked out my previous blog posts?

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Your Toronto condo lover,

Adil Dharssi

Sales Representative

Skybound Realty, Brokerage

Direct: 647-223-1679 (call/text)

Email: Adil@AdilKnowsCondos.com

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