In this article, we’ll discuss whether or not depreciation reports are mandatory in British Columbia for purchasing a strata property.
What Are Depreciation Reports?
In December 2013, the latest BC government directive took effect requiring condominiums to prepare strata depreciation reports to give buyers a detailed overview of a building’s long-term expenses.
Requirements
All strata corporations in BC need to update their depreciation reports every three years unless they hold an annual ¾ vote to waive the requirement.
To learn more, visit the Office of Housing and Construction Standards Depreciation Reports Guide 12.
What Is The Purpose Of a Depreciation Report?
The purpose of a depreciation report is to give a standard to follow to all strata and strata companies in BC. This helps condo purchasers and mortgage lenders have a clearer view of the building’s health and the common property associated with it.
When looking to buy, most people focus on the units’ finishes. But in reality, the true cost associated with the purchase will be in the bones of the building. The goal of a depreciation report is to help strata owners and lenders make informed decisions.
Should You Purchase Strata Without a Depreciation Report?
What effect, if any, would the purchase of a condo or strata unit without a depreciation report cause? You must remember that this report was created to bring stratas up to standard, which won’t happen overnight.
Why Some Stratas May Not Complete a Depreciation Report In BC
- Depreciation reports are costly
- Stratas feel the building is in sound shape
- Those managing the strata worry that the report may turn away potential purchasers
- If the depreciation report is poor, lenders may require a higher rate of interest to offset risk
How Will The Lack Of a Depreciation Report Effect Refinance In BC?
Many lenders I send in refinance applications on strata units ask for the depreciation report before even considering the request.
The uncertainty in these cases is so high due to possible maintenance issues that some lenders have reduced the maximum they’ll consider for such refinances. The lack of a depreciation report could put some homeowners looking to refinance strata in BC into the alternative mortgage market.
Alternative Mortgage Market Requirements
There are three main types of alternative lenders in BC
1. B-Lenders
B-Lenders have less stringent debt servicing requirements and can look at stated income up to 75%. However, in most cases with strata housing, they’ll only consider 70%. Fees and higher-than-bank rates apply
2. MIC or Mortgage Investment Corporations
There are hundreds of MIC’s in BC who will look at a variety of property types, some even going up to a 75% Loan To Value on strata units.
Mortgage Investment Corporations come with a higher-than-average interest rate but will fund solely on the home’s value, not on current income or credit challenges.
3. Private Mortgage Lenders
These are individuals or syndicates investing in all types of real estate in BC.
Private lenders can look at a broad variety of mortgages and may sometimes lend more creatively, even on strata units. Broker and Lender fees can apply. These loans do come with higher than average interest rates, solely based on home equity instead of credit or income.
What Alternative Lenders Want To Review When Applying For Strata Properties:
- 12 Months Strata
- AGM Annual General Meeting
- Financials
- Depreciation Report (if available)
- Form B for the Building
With this information, along with the application, alternative lenders can make an educated decision on how much they are comfortable lending on the property. Unlike traditional banks, these lenders take a more common-sense approach.
If you’d like to know more about depreciation reports and how these can affect you, get in touch with us. We’ll assess your particular situation and help you take the next steps.
If you are interested in learning how mortgages work in BC, Canada, you might enjoy these articles:
- Using a Home Renovation Loan For Fixer-Uppers
- How Many Mortgages Can You Have In BC, Canada
- 5 Scenarios When A Private Money Lender Is Your Best Financing Option
