To understand a little about why condos are not the best fit for investors, you have to understand how condos operate a little bit. The condo is an idealistic creation of democracy at work. Simply put, the building entity is put into a corporation and each unit owner owns a share of the building/corporation.
Each owner gets a vote for the Board members and those Board members are responsible for the operations of the building in conjunction with the property manager if there is one. Owners also need to vote on major building issues.
I’m going to ignore the fact that 99% of people are not qualified or understand in any way the complex building systems and contracts in a condo and the fact that another giant percentage of people are difficult, litigious, cranky, ignorant and obscene.
I’m going to simply talk about the fact that condos were originally designed as a corporate entity for people who lived in the building. The idea was a community of people with a common goal of having a nice decent place to live and everyone would work together for the benefit of all.
There are two problems with the system, one is general apathy and the other is that investors do not care to attend Board Meetings. In many cases you must live in the building to be on the condo board. You also don’t get paid and people will nit pick, complain and second guess everything you do.
What happens when investors and others are not involved is the following that I received several months ago.
Dear Home owner,
As you will now be aware the response to the AGM meeting that took place was very low and we were unable to obtain the required Quorum to pass the bylaws.
The meeting has been rescheduled for another date. Therefore we are asking for you to please complete and return the attached proxy, completing all highlighted sections and items. Please submit via email or alternatively you can leave these with concierge.
If you have any queries or wish to discuss this further, please contact the Management Office.
Your prompt response is appreciated.
Poor Ignored Property Manager...
So imagine that you are in a building that is 80% investor owned and most of those investors are not involved in the community of their building or Board affairs, you simply can’t run the building. At one point you the manager or condo board have no legal mandate to enact or do anything at all. This is what is going on in this particular building.
ADJOURNED OWNERS MEETING (AGM)
Further to the Annual General Meeting a vote has been called and motioned to adjourn a meeting to the following Agenda Items due to insufficient of votes to meet the required percentage of the matters tabled at the meeting.
In the matter of Borrowing Bylaw #4 allows the corporation to place replacement mortgages against the Superintendent’s suite (this requires 50%+ of votes)
In the matter of Borrowing Bylaw #5 allows the corporation to place replacement mortgages against the Guest Suite (this requires 50%+ of votes)
In the matter of Borrowing Bylaw #6 allows the corporation to place replacement mortgages against the Guest Suite (this requires 50%+ of votes)
For the vote on sale of the guest suite (requires 67%+ votes)
In the matter of modification to the common element fees. (requires 90% of votes)
We anticipate that we will achieve all required votes and pass the Borrowing By-Laws including the matter of modification to the common element fees.
If you can not attend the meeting, please send in your proxies for quorum and achievement of the above initiatives. For your convenience, proxies will be available at concierge desk. Please come and fill in the Proxy, date it, sign it and submit to Management office (see attached blank proxy form and explanations).
NOTE: If you have submitted your proxy and voted ahead of this meeting, you are not required to send in your proxies again – thank you.
If you have any questions or queries, do not hesitate to contact the Management Office.
Poor Ignored Property Manager
In this case the manager is trying desperately to remortgage the guest suites and Super’s suite because the developer is charging them some unholy percentage of interest.The goal is to save the unit holders lots of dinero in maintenance fees. But a lot of their investors are not there in the building and no one is voting because it’s too much trouble and so no one (not even God) can do anything in the buildings.
This is common and that’s the problem.
There is no such thing as passive real estate investing!
Just like you won’t look like Arnold Schwarzenegger without exercise, you won’t make money in real estate without working for it. Investors buy condos because they are passive investments they think they don’t have to do much with and then the property managers and Board members can’t run the building because investors can’t be bothered to vote.
I wrote a few days ago about how condos are crappy and a twitter follower said “Investors shouldn’t buy condos unless they are going to participate and be informed about the condo board and governance of the Condo Corporation” and he’s right and it causes tremendous problems and the response to the problem caused by these investors and non voting bystanders is even worse than the problem it was designed to repair.
To recap, investors are told condos are a passive investment and they don’t participate in the running of the building which hamstrings the condo corporation, the condo board and the property manager. Complete chaos ensues. No one can do anything about it et vitam eternam.
Can you say Inertia?