There are instances where either the vendor or the purchaser may wish to back out of the agreement. You have to be careful because legal problems can result in litigation, and litigation is expensive, time consuming, stressful, protracted, and uncertain in outcome. You want to get legal advice before you act from a streetsmart real estate lawyer. Some of the various types of legal options are discussed below. Generic examples are given, as you could be buying property in Alberta, B.C., or other provinces.

Rescission
In several provinces of Canada and states in the United States there is a “cooling-off” or rescission period, whereby the purchaser of a new property has a period of time (usually from three days to thirty days) to back out of the contract by giving notice to the vendor in writing before the deadline. The vendor is obliged to pay back without penalty all the money that the purchaser has placed on deposit. In cases where legislation does not give an automatic right to rescission the documents that are a part of the property package may have a rescission period built in. If you do not have a statutory (by legislation) right to rescission and it is not part of the documents relating to the purchase of a new property, then you may want to make it a condition of your offer.

Flips, flipper, flipping. You have all heard those words. We are not talking about hamburgers here. What does it conjure up in your mind? Buying and selling real estate quickly? Easy and serious money? No risk, high rewards? Or high risk, unknown rewards? Maybe the song goes through your mind: “fools rush in where angels fear to tread”, or you believe in the age-old sage adage: Act in haste; repent at leisure.

What’s it All About Alfie?

Whatever you think, here is an explanation of the reality of the process.

Flipping real estate means buying and selling real estate before closing of the deal and transfer of property, or shortly thereafter, eg within days, weeks or months. The purpose is to get in and out in a “hot” real estate market with rapidly rising prices and high demand, without the expense and hassle of carrying the cost of financing the property, or getting renters. Flipping is not real estate investment, but real estate speculation, with all the inherent risks and rewards that go along with speculating in any type of commodity. Speculation always assumes the market cycle will continue going up rapidly. However, as we all know or should know, real estate, business, or investment markets do not keep going up forever, as there is always a buyer price point ceiling, lender financing threshold comfort level, or revenue/expenses numbers that don’t make sense to a real estate investor. Any type of market is always cyclic, what goes up does comes down over time, or at least slows down and plateaus, and then goes up again at a different pace.

Flipping consists of two main options and variations of them.

Option # 1 – Before Closing:

In this option you want to find a buyer for the agreement of purchase and sale before you close the deal but after you remove any subject conditions, and assigning your interest to the buyer, who closes the deal. You would receive money for the assignment in this example, which would include the down payment you paid, plus the extra money you negotiate for the assignment. In this example, your plan is not to close the deal and have to arrange financing, but have a buyer already arranged, or know (or think you know) how to find a buyer of your agreement, who wants to take it over. If you have a long closing date, for example, 4-6 months for an existing property, or maybe a year or longer for an undeveloped pre-sale property, you can try to find a buyer while real estate prices are going up quickly over that time.

When you buy a condo, there are different types of legal ownership, such as freehold or leasehold, or if buying with others, joint tenancy or tenancy-in-common. Here is an overview of your options:

Types of Legal Interest in Land

Freehold
This type of ownership in land entitles the owner to use the land for an indefinite period of time and to deal with the land in any way he or she wishes, subject to legislation (eg the Condominium legislation), contractual obligations (eg condo and regulations, etc.) and any charges which encumber the title of the property and which are filed in the provincial land registry office (e.g., mortgages, liens, judgments, etc.). Another term for freehold is fee simple. Most owners of condominiums acquire fee simple interest.

Leasehold Interest
In this example, the holder of the interest in land has the right to use the land for a fixed period of time, for example, 50 or 99 years. The owner of the property (landlord or lessor) signs an agreement with the owner of the leasehold interest (tenant or lessee) setting out various terms and conditions of the relationship. The contract in relation to a condominium would set out such conditions as maintenance requirements, restrictions on use of the land, building construction requirements, and other matters. The leasehold interest can be bought and sold, but the leaseholder can only sell the right to use the land for the time that is remaining in the lease – subject, of course, to any conditions contained in the original lease.

Types of Joint Ownership

You may wish to have shared ownership in the property with one or more other persons. There are two main types of joint ownership: tenancy-in-common and joint tenancy.

Tenancy-in-Common
In this form of ownership, the tenants can hold unequal shares in the property. Each party owns an undivided share in the property and therefore is entitled to possession of the whole of the property. For example, there could be five people who are tenants in common, but four of them could each own one-tenth (1/10) of the property and the fifth person could own six-tenths (6/10) of the property.

If the holder of a tenancy-in-common wishes to sell or mortgage his or her interest in the property, that can be done. When a buyer cannot be found and the tenant-in-common wants to obtain his money out of the property, he can go to court and under a legal procedure call “partition”, request that the court order the property be sold and that it distribute the net proceeds of sale proportionately.

There are numerous types of condominium formats for residential, recreational, resort, and commercial purposes. To give you a better understanding of the wide variety of options available, here is an overview of the most common formats to consider:

Residential Condominiums

Residential condominiums can be found in either the metropolitan or the suburban setting.

Metropolitan location
In the metropolitan setting the most common formats are:

• a modern high-rise apartment building

• a three-to-five storey new mid-rise building

• a converted older building that formerly consisted of rental apartments

• a building where the street-level floor is owned jointly by the condominium corporation members (the unit owners) and which is rented out to retailers to help offset the common maintenance fees of the residential condominiums in the rest of the building

• same format as the previous example, except that the retail space is sold as condominiums.

Suburban location
Suburban condominiums tend to be of a different format and are most often found in the form of:

• cluster housing consisting of multi-unit structures, using housing of two to four units apiece, each with its own private entranceway

• townhouse-type single-family homes distributed in rows garden apartments consisting of a group of apartment buildings surrounding a common green, frequently with each of the floors held by separate condominium owners

• a series of detached single-family homes in a subdivision format, all utilizing the same land and parking areas

• duplexes, triplexes, or four-plexes.

The suburban condominium format tends to make maximum use of the land while creating attractive views, private driveways, and common recreational facilities such as swimming pools, tennis courts, saunas, playground, etc. Many residential condominium developments, with the conveniences and amenities being offered, have created a complete lifestyle experience. The purpose of these separate developments – restaurants, shopping centres, recreational and entertainment facilities, and care facilities for older people – is to make the condominium community a very distinct and self-contained environment and community for many people.

Have you considered buying a condo as a rental property? If you are considering investing in a condominium, it is important to consider the advantages and disadvantages of the different types of condominiums, for example, apartment, townhouse, conversion, new, re-sale or pre-sale. Check on whether rental units are permitted in the development, and on the current mix of tenants and owner/occupiers.

Benefits:

Here are some of the benefits you may wish to consider:

• Condominiums generally appreciate in value at a rate which is almost consistently higher than the inflation rate.

• Finding an occupant for a condominium apartment is relatively easy in many major Canadian cities because of low vacancy rates.

• There is an increasing demand for the condominium lifestyle and the luxury and convenience that it provides.

• Because a minimal amount of upkeep is involved, the economic benefits are more attractive for the first-time investor.

• There is the convenience of having many of the management and maintenance problems taken care of by the condominium corporation, and the professional management company, if any.

• Facilities such as tennis courts and swimming pools are maintained by the condominium corporation, thereby freeing the new investor from the responsibilities of upkeep.

• The owner is protected by the bylaws and the rules and regulations set by provincial condominium legislation, by the original project documents, and by the bylaws and rules and regulations. For example, many condominiums do not allow pets in the building because of the potential wear and tear on the apartment. This type of rule protects and benefits the investor.

If you are looking for higher appreciation (re-sale value), the purchase of the least expensive unit in a luxury condominium/townhouse complex generally offers a more financially attractive return than the purchase of the largest unit in a modestly priced development, assuming the price is the same. A townhouse condominium generally appreciates faster than an apartment condominium. Your research will provide you with the necessary background statistics in your market interest area.

2. What are the tax, legal, and financing considerations?

If you decide to invest in a condominium rental property, many of your personal expenses may be deducted from income in addition to the normal tax deductions such as mortgage, interest, depreciation, and other condominium-related expenses. For example, you would normally be entitled to set up a small office in your current residence for managing your investments, which would include keeping your records. You could deduct a percentage of all your home-related expenses. The normal formula is to take the square footage of the office area that you are using relative to the total square footage in your home. In general terms, 10% to 15% or more is usually deducted for that portion.

In addition, you would be entitled to deduct a part of the car-related expenses involved in managing your investment portfolio, whether it is one rental property or more than one. The percentage of all your car-related expenses can vary, obviously depending on the usage of the car relating to your investment.

If you are seriously contemplating investing in a condominium, it is important to seek competent tax and accounting from a qualified professional, and legal advice from a lawyer specializing in condominium law.

When selecting a condo to purchase, there are some key factors you need to consider in your selection. This is Part II of a two part article. Click here to read Part I

When selecting a condo to purchase, there are some key factors you need to consider in your selection. Certain factors may be more or less important, depending on whether you are buying a condo as a principal residence, or for recreational use, or as a real estate investment. Here are some of the most common criteria to consider. When buying a condo, you are also putting your mind to the attractive resale features in the future.

Management
Enquire as to whether the condo building is being operated by a professional management company, operated by a resident manager, or is self-managed. Ideally, you should check out the condominium unit or property that you are interested in at three different times before you decide to purchase: during the day, in the evening, and on a weekend. That should give you a better profile of noise factors, children, or parties, and the effectiveness of the management control.

Property Taxes
Compare the costs of taxes in the area that you are considering with those of other areas equally attractive to you. Different municipalities have different tax rates and there could be a considerable cost saving or expense. Also enquire as to whether there is any anticipated tax increases and why.

Rental Situation in Area
Look for an area that enjoys a high rental demand, if you are considering a condominium purchase as a revenue property. You want to minimize the risk of having a vacancy. Check with your realtor and various ongoing surveys to obtain average house and condominium rentals in the area. For example, many real estate companies and CMHC have free surveys on a quarterly or monthly basis, giving average rental prices in specific areas for specific types of properties. You don’t want too high a number of rental houses or condos, as that will increase competition and possibly reduce the overall desirability of the neighbourhood.

Local Restrictions and Opportunities

What essential factors to I need to consider when selecting a condo?

Certain factors may be more or less important, depending on whether you are buying a condo for personal use (principal residence) or for revenue real estate investment.

Location
One of the prime considerations is the location. How close is the property to schools, cultural attractions, shopping centres, recreational facilities, work, and transportation? How attractive is the present and future development of the area surrounding the property? You could buy a condo and six months later a shopping complex could be built across the street, blocking your view and therefore decreasing the resale value of your property. The location should have ample access to parking and other attractive features. Check on the amount of traffic on the streets in your area. Heavy traffic can be a noise nuisance as well as a hazard for young children.

Noise
Thoroughly check the level of noise. Consider such factors as location of highways, driveways, parking lots, playgrounds, and businesses. When buying a condominium, it is particularly important to consider the location of the garage doors, elevators, garbage chutes, and the heating and air-conditioning plant or equipment.

Privacy
Privacy is an important consideration and has to be thoroughly explored. For example, you want to make sure that the sound insulation between the walls, floors, and ceilings of your property is sufficient to enable you to live comfortably without annoying your neighbours or having your neighbours annoy you. Such factors as the distance between your unit and other common areas, including walkways, roads, and fences, are important.

Pricing
The pricing of the property you are considering should be competitive with that of other, similar offerings. On the other hand, when purchasing a condominium unit, it is sometimes difficult to compare prices accurately without taking into account the different amenities that may be available in one condominium that are not available in the other – for example, tennis courts, swimming pool, recreation centre, etc. You may decide that you do not want these extra facilities in view of your lifestyle needs, in which case paying an extra price for the unit because of these features would not be economical. On the other hand, you have to look at the resale potential, so check with your realtor. He or she can obtain accurate information on comparative pricing and cost per square foot for similar properties in the same condo building or complex.

Common Elements and Facilities
When buying a condominium unit, review all the common elements that make up the condominium development. Consider these from the perspective of the relevance to your needs as well as the maintenance or operational costs that might be required to service these features.