#11 – Home or Investment?

As a consultant to Strata Plan clients, I often find myself trying to offer individual owners a new perspective, to help them better understand the responsibilities of their Strata Corporation and their own position within its operation. The word “within” is perhaps the most telling aspect of the owners’ relationship with their Strata Corporation.

A single family home owner purchases his home and lives essentially unhindered. A Strata owner purchases his home but must then live “within” the restrictions placed on him by the Strata Corporation.

Rather than viewing a strata purchase as buying a “home”, an owner is better off viewing it as buying a “share” in the Strata Corporation, treating the transaction in much the same way as one would purchase stock in a company. The number of “shares” in the Corporation is restricted to the number of units, and the purchase of a “share” entitles the owner to live “within” the Strata property in his own unit.

To varying degrees, we all see the purchase of our homes as an investment but if, in purchasing a strata home, the buyer places an added emphasis on the “investment” aspect, this change in perspective may assist many to understand the differences in the two types of property ownership.

Under this arrangement, the owner also agrees (knowingly or not) to live “within” the rules of the Strata Plan, which come from two sources. The first is the BC Strata Property Act (SPA), which governs the operations of the Corporation and its Directors in much the same manner as any publicly traded company. The SPA is the “law” under which the Corporation must operate, whether an individual owner likes it or not.

The second set of rules is generated by the Strata owners themselves and laid out in the Corporation’s bylaws and, again, this is directly comparable to the operation of any company in which we might invest. Every Strata has a set of bylaws, whether developed and voted into the record by the owners or, lacking those, the default bylaws laid out in the SPA.

Any investor about to spend several hundred thousand dollars on the purchase of shares – on the stock market or in a Strata Corporation – is well advised to look carefully into the company’s bylaws and operations, and the laws that govern those operations. Unfortunately, it seems that many strata purchasers step into the transaction because, “We found this lovely little condo…”, and forget to look at all the other conditions, expectations and restrictions placed on the ownership of their “share”.

To purchase a strata property is to become a member in a “Corporate Partnership” and as with any venture, its success or failure depends entirely on the effort each partner/owner is willing to put into “The Business”. A Strata Corporation’s business is subject to a different set of rules and regulations than those governing individual ownership of a property, and it is best that each “partner” understands this clearly before buying a “share”.

John Grubb is a Property Maintenance Consultant serving Strata Corporations and building owners on Vancouver Island.

Strata Property – Home or Investment? – Part 2

Continuing with the premise from our last column that purchasing a Strata property should be viewed more like investing in a company’s stock, than buying a home, it is also for this reason that the Strata Corporation has so much influence over each “shareholder’s” living circumstances.
The “business” of the Strata Corporation is to manage the property on behalf of – and to the benefit of – all the “partners” or “shareholders”, just the same as any other publicly traded company. Once again, the rules and regulations under which the Corporation must operate are laid out in the BC Strata Property Act.

In order to operate successfully, a Strata Corporation, no less than any other business, needs a Business Plan, so that all the “investors” can clearly    understand    what    the Corporation will do to properly manage the company’s assets, often worth several millions of dollars. There are two separate but related parts to a good plan.

First,    the    plan    covers    the management of the day-to-day business – maintaining the grounds, removing the garbage, paying the taxes, etc. – generally given the heading of “Annual Operations”.

The second part of the Business Plan is to look to the future of the property and building structures, and develop the long term plans that anticipate the needs for their major maintenance and upkeep. This includes projects such as roof renewal and exterior painting and, depending on the type of property, can include many other major systems that will eventually wear out and need to be replaced.

The toughest part of the Corporation’s business is generating income. It provides a “service” (property management) but its “customer base” is limited to the owners, none of whom wish to pay any more in Strata fees than necessary, which brings us back to the Business Plan. Without one it’s difficult for any owner to understand what he’s paying for, or for the Corporation to decide what is reasonable.

The fees assessed by most Stratas adequately handle the funding of the day-to-day Operations requirements but, all too often, Corporations make little if any provision for the long term financial requirements of their properties. A good Business Plan will encompass both the short and long term, by anticipating the needs of the property at least five years and better still, ten, fifteen or more years into the future.

A Strata Corporation has two alternatives when assessing owners for funding to meet the property’s major maintenance project costs – a Special Assessment, often for many thousands of dollars, to be paid by each owner in a very short timeframe, or – annual (monthly) Strata Fees that include reasonable amounts to cover the costs of the inevitable replacement projects that a good Business Plan has identified many years in the future.

As a “partner/shareholder” in the Corporation, it’s in the best interest of each owner to pay attention to the “business” to which, they have delegated the management of their significant, and likely, most important personal investment. You wouldn’t invest $200,000 in a company’s stock without ensuring it has a sound business plan. Why would you do anything different when buying a “share” in a Strata Corporation?
If you already have and there’s no plan in place – it’s never too late to start.

John Grubb is a Property Maintenance Consultant serving Strata Corporations and building owners on Vancouver Island.

To Next Article: Strata Strategies #12 – Roof Inspection & Maintenance

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