I am looking at buying my first I.P. in WA and the property itself is well within the 11 second rule. The offer price is $85K and the current rent is $220pw, which is very comforting![]
However, when running my own cashflow analysis over the property the gains are severely eroded by the body corporate fees of $2000 pa (for 2 units).
What I want to know is, what should I know about body corporates? How much can I expect this fee to increase each year? What sort of maintainence is included in it? What sort of insurance do they generally provide? Is there any thing I should be wary of?
Hi,
I am not yet an expert on property but here’s what I can offer on this subject…
One of the first questions I asked about a property when buying was the BC fees as they do have a big impact on cashflow.
I looked out for things like swimming pools that would add up to a big drain on BC funds but not equate to a compensatory rise in rent.
BC’s have a sinking fund and an admin fund. The sinking fund is where the money for maintenance comes from. In cases where there is a need, BC’s can issue a demand for additional contributions to the sinking fund as happened to a property of mine when a retaining wall needed to be built to deal with termites.
When you buy ask for the current balances of the sinking and admin funds. Legally these have to be provided to you anyway. This and the condition of the property will give you an idea of how well the fund is managed. It is good idea to aim for a balance of several hundred dollars per property in that BC. If the balance is quite low ask if they recently performed any major repairs – you never know what you will find out. You don’t want it too high either as that means the managers may not be doing general maintenance and repairs or charging you too much.
$1000 a unit seems pretty reasonable. I have seen anything from $400 to $1600 myself. The key points are is the BC being managed well and is the account balance reasonable? Ask the REA as they should have a good idea about how the different companies perform.
Legally I don’t know how resposible the BC managers are. Remember as an owner you can always become part of the managing committee and influence their decisions!
I have decided not to buy the units. Despite the very high yield, the agents fees ($1000pa), rates ($1700pa), and body corporate ($2000pa) have turned me off it. It would be marginal at best and if the fees (which I have no control over) went up I would be in cashflow negative territory.
With regard to Body Corporate and fees etc., join the committe, or at the very least attend the annual meetings where expenditure past and future is discussed.
Cheers
Mel
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