I'm just about to sign the contract on a unit as everything seemed to be stacking up (ie. slightly negative geared but almost neutral, good building report, good location with potential of capital gains) but I have just read the strata report and I'm shocked at how much needs to be done. A $2000 on-off payment has just been paid for urgent repairs to common areas and there's still more repairs needed (external painting, rewater proofing at least one balcony etc). The admin fund is slightly in arrears but the sinking fund has about $20,000 in it. As I've never bought a unit before I don't know what is a good amount to have in the strata funds (there are 27 units in the complex) or if the repairs are excessive for the age of units (14yo). Any advice would be helpful.
I was hoping to go to the bank tomorrow for the deposit cheque but should I wait and get my accountant (assuming he could even help) to have a look at the strata report and the figures in it? Getting my accountant to look at it will be a few hundred dollars min but would it save me buying a money pit?
Perhaps I'm just having a last minute panic for no good reason!
KijaHi Kija
Hate to say your Accountant will not be qualified to assess a Strata Report.He might be able to churn a few figures make some right noises and generally pass comment but you would probably better having your Solicitor or even a Quantity Surveyor review the report and make some suggestions on renegotiating the price to cater for forthcoming expenses.
Wouldn’t be too concerned with the position of the Admin Fund but certainly want to make sure the Sinking Fund Report reads well.
Get a copy of the last years AGM minutes and read up on the comments passed by the Strata Manager.
Some of the items could be covered by Insurance.Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks QLD,
My solicitor has gone through it but how can he possibly pass judgement on the financials? I have the minutes for the agms for the past 3 years and the minutes for 2 extraordinary meetings held since late last year plus all associated paperwork (eg. fire safety reports, quotes, strata fee predictions etc). There is a quote for maintenance work totatalling $171,000 which would equate to a one-off payment of around $6000 per unit. I just think that a total of $20 000 in the sinking fund seems like not enough for a 14 yo unit complex especially considering the admin fund is in arrears?
I have already negotiated a price which is at least $35000 below market value. I'm concerned the units aren't being well managed or and I'll continually have to pay above the strata fees.
Such a difficult decision part of me says just take the risk! But I'm still worried the extra out of my own pocket will affect borrowing for future purchases.Your solicitor has usual seen alot of strata reports so they know if the situation is good or bad but, it sounds like you might have some special levys coming your way. I have a seen a friend go and re-negotiate down an agreed price on a place during the cooling off period due to a large 15k special levy that was picked up on a strata search.
I think its ok the $171,000 repairs have been rejected but approved with a lesser quote and a levy was paid on 1/7/2012 for this. I have reread the strata report myself, made better sense of it and done some more figures. In actual fact it seems quite good so the only levy I should to pay in the future should be to get the admin fund out of the read and this shouldn't be much (obviously I just had a last minute panic!).
HI Kija,
How much is the ongoing strata and also does the complex have a pool or lifts?
Also if you are concerned it may be worthwhile for you or your solicitor/conveyancor to talk to the strata manager. I had one case the the purchaser spoke to the Strata Manager and he stated that they are planning to remove a tree within a complex in 6 months which will cost each dwelling approx $5k.
Regards
Shahin Afarin – Property Finance Consultant
http://elitepropertyfinance.wordpress.com/TheFinanceShop | Elite Property Finance
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This sounds like a lot of repairs. At $171000 – do you want to be involved in all of this?
As I always say- this will not be the last investment property ever- there will always be another around the corner.
Try looking for something with less units in the block and that is perhaps newer.
You are kind of tied to the properties once you buy. And its not like a house where you can do what needs to be done or not- you have to go with what the body corporate say you have to and you might not be in a financial position to go with it when they require the payments.
What is your heart of hearts telling you?
One of my lecturers – now Chancellor of the University said – “If your heart tells you one thing and your figures don’t stack up – do your figures again- you have missed something.”……..@womeninpropmelb – I misread the strata meeting minutes and thought that there was 2 lots of repairs needed some for $60,000 and some for $171,000 but it seems they were quotes for the same job. The strata chose the cheaper quote and the once-off levy has already been paid. Now the admin fund need to get into the black which is only a few hundred dollars per unit and since my yearly out of pocket for the investment is close to $0 then I think I can afford this.
I would tread carefully with this one. In my opinion, a 14 year old building is not particularly old, and if you are already seeing significant maintenance requirements, it could be a sign of things to come. Sorry if this seems really obvious, but have had the property inspected by an independent builder? They should be able to give you an idea of what you can expect in terms of maintenance in the near term.
Cheers
KrisFreedom Through- Kris- I am with you… seems a lot to pay for maintenance – even in the body corporate.
There is always another investment property around the corner.
Independent building inspector – Yep the way to go.Quite a large complex. Not necessarily a red flag as it could be a premium location.
Would be inclined to look at smaller complexes for relative yield and land value/content in the same area, or even houses if just for comparison before going ahead, the condition questions are worth exploring though, you would want to know the chance of ongoing problems happening.
Sounds like a hell of a lot of headaches ahead or ‘lessons’ ahead, to me.
I think you can do a lot better! Definitely red flags for me on this one.
Think about what kind of investment YOU want and go and get THAT!
Leave the headache deals to others to worry about.I was just looking at my old posts and had a little chuckle over this one. I went ahead and bought the unit. It has cost me virtually nothing in the last 7 months since I bought it in terms of unexpected repairs. Four weeks after I bought it I got it revalued for $46,000 more than the purchase price. I have put up the rent twice and it is now positive cash flow. My last line of the post was original post was definitely accurate!!!
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