Buying a condominium can be an excellent alternative to buying a detached home or townhouse. Condos are often more affordable and can offer sky-high views within close proximity to most amenities. However, whether you own a condo for personal living or as an investment, it’s important to understand the associated risks.
Risks of Condo Ownership for Personal Use
If you own a condo unit for personal use, there are some things you need to keep in mind.
Any improvements you’ve made to the condo (upgrading the countertops or renovating the bathroom, for example) may not be covered in the event of an emergency if they are not disclosed to your insurance company. It’s important to realize that improvements are often not covered by the condo corporation’s insurance – they are usually only obliged to repair the building to its original standard. Some condo corporation’s policies don’t even cover fixtures (permanently installed lights, window coverings, etc.), flooring, or glass – or in some extreme cases, drywall or ceilings. So, make sure to let your insurance provider know of any improvements that you’re responsible to insure.
Construction codes and regulations evolve over time, with older condos unlikely to have been built to the same standards as those built today. Leaky Condo Syndrome affected many condos built on the west coast between the 1980’s and early 2000’s. Essentially, some condos weren’t built to withstand the amount of moisture and rain the west coast receives, and repairs caused many owners to suffer massive financial losses. Over 31,000 units were affected, so double-check that yours isn’t one of them. If you do buy a condo in Vancouver, check whether it was built to current code. If not, find out if the building has been rain-screened, or if the building envelope was recently inspected.
The Condo Building & Condo Corporation Risks
Wear and tear is a natural and common part of home ownership. But finding out how the condo board deals with maintenance can be telling. Do they take care of problems as they arise? When was the last time the roof was replaced? If it’s due, you might be in for an unexpected expense if the condo’s reserve fund is running low. What other large property improvements or maintenance tasks has the condo moved forward with? These are all questions you should ask, as the answers can significantly impact the risk of buying the condo.
It’s not just your own unit that you need to worry about when buying a condo. There are also risks related to the condo corporation’s insurance (and the condo building as a whole) that many first-time buyers overlook.
Assessments for Portion of Property Deductible
When the condo corporation makes a claim for damage to the building, they may assess a portion of the deductible to each unit owner. In some cases, they can assess the whole deductible to a single unit owner. Deductibles can range from $5,000 to $75,000, and in some cases even higher. If you don’t have the right home insurance coverage, you could be paying this out of your own pocket.
Insufficient Liability Coverage
Let’s say you buy your dream home: a condo right on the water in your dream city. One evening, a famous hockey player slips and falls on an unmarked set of wet tiles in the condo’s entry. He is seriously injured, and might never play hockey again, so he sues the condo corporation for loss of earnings. This could be a multi million-dollar claim, and the condo corporation may not have enough liability insurance to cover all of it. In this case, assessments would be made against each individual unit owner to pay the remainder of the lawsuit.
To manage risks like these, make sure you have suitable liability coverage. Also, make sure your condo corporation has the proper coverage for the types of homes it contains. And don’t be afraid to voice your concerns if you find otherwise.
If you are unsure about anything you have read above, share a copy of the condo corporation’s insurance policy with your insurance provider, and get their opinion on the additional coverage you may need.
Risks with Condo Ownership as an Investment
Owning a condo as an investor exposes you to the same risks as outlined above (relating to the condo corporation’s insurance). However, whether you invest in a unit that is vacant, or one intended for rental, you need to be aware of additional possible risks.
Vacant units pose a higher risk of vandalism and break-ins. In extreme cases, you may find that squatters try to set up camp in your condo. Units on the ground floor are more vulnerable to this type of risk, but don’t underestimate the lengths people will go to avoid detection.
Operating a short-term rental (like Airbnb) in your investment unit brings risks as well as rewards. A common issue is landlords’ property being stolen. A regular condo insurance policy will not cover this, so you may need additional coverage. Some providers offer short-term rental insurance, but some may require you to have specific rental property insurance.
Additionally, consider the damage your guests could do to other units in the condo, and the effect this could have on you. If they damage your neighbour’s unit while using your barbecue, for example, both you and your guests may find yourselves subject to lawsuits. Without liability insurance, you could be in for a long (and expensive) legal process to defend yourself.
However, there is good news, and steps you can take to protect yourself and your condo. These days, almost everyone has a presence online, so consider checking out your guests before you agree to the deal. They should have a history with the rental site, and if not, ask to speak to them on the phone before agreeing to any terms. Once they arrive, check their I.D. and make sure there aren’t any unexpected additional guests. And, be sure to check first with your home insurance provider to make sure you have the right coverage for your home while it is rented to others.
Long term rentals face many of the above risks, plus the possibility of lost rental income due to an insured loss. For example, if there is damage to the unit that renders it uninhabitable, your tenant would not be responsible for paying further rent. This loss of income can be avoided by purchasing rental income loss protection with your insurance policy.
Now that you know the risks associated with buying a condo, why not contact your insurance provider to make sure you’re properly covered? If you’re buying a condo to live in, make sure the condo corporation is on top of any building maintenance. If buying as an investment, make sure your condo is protected when vacant. And if you’re buying to rent, be selective who you rent to. It could save you a lot of time and money down the road.
Written by Guest Contributor, Stefan Tirschler, Square One Insurance
With over a decade of experience as a personal insurance underwriter and customer advocate, Stefan appreciates the changing needs of insurance customers, and how home insurance providers can help.
Holding one of the most sought-after designations in the industry, Stefan is a Fellow Chartered Insurance Professional who strives to inform consumers and professionals alike on the topic of home insurance.
Square One Insurance Services specializes in a wide variety of home insurance products and services. Eliminating the complexities built into traditional policies, Square One makes it easy and convenient for people to personalize their insurance to meet their needs.