I feel like I am always asking silly questions, but here comes another one!
We have exchanged contracts and settle in 4 weeks on a 3 bedroom duplex. During our search we told the agents that we were not interested in any properties that had a body corporate or the fees that are associated with one. We were assured that this property met our criteria and the only cost were the insurance for the common property (driveway).
Since this time we have been in touch we the owner of the other unit and they tell me there is $500 per quarter payable to cover the insurance ($1400/year) and the balance accumulates as a form of sinking fund.
My question is are we obliged to continue this additional contribution.
Thanks Mick
Mick .. the amount involved is pitifully small in relation to the overall cost of the deal.
Secondly, it may not seem necessary to have insurance at the time, but the moment you dont .. you'll be paying for it.
Lets assume your property is worth 350k (i'm guessing here) and that your borrowings are most of it. (say 80%).
Lets assume a staggered slow cumulative growth of only 4% a year (reasonable considering variations in markets)
So .. over the period of 5 years .. you'll have paid out a total of 10000 dollars .. have a little bit of a sinking fund.
In the meantime .. assuming ONLY a 4% cumulative PA … your property will be 70k more in value. (accrued total at 21% and actual increase being 73.5K)
The numbers are working in your favor.
Dont forget .. your claimable tax deductions on the property. And yes .. body corp is one of them.
And I havent even included the rental increase.
You can grumble about it .. or you can accept it .. sit back and make money off it.
Nobody likes paying out, it has to come from somewhere. But .. what you are doing is making sure you dont get hit badly by unexpected things, covering your ass from claims and .. basically protecting your asset.
Properly accounted for in your records .. you'll be achieving better than a 7-1 return on your costs. Thats almost a good bet at the racetrack .. and you dont even need to race a horse to achieve it !
I dont see why body corp should scare you. Body corp is just a means of collaborative and functional property management. As a part-owner of the property .. you have just as much contribution as anyone else. And if its your property .. you SHOULD contribute in the decision making.
You are REQUIRED to come up with the amount they are chasing up. If you become a non-contributor and behind in payments .. the other parties in the body corp or group management are allowed to chase you up for the initial amount, costs plus interest.
What was in the contract you signed? Did you see any strata searches or conduct any?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
XDrew, Body corp doesn't scare me, it was an added cost that didn't fit within my property profile! Of course i will insure my investment. I would rather the additional monies being in my offset saving me money.
The body corp agreement is not a written one but rather an informal verbal agreement between the previous owners of the 2 properties.
Terry, nothing in the searches hence the ? are we obliged to continue paying.
You have to look and see if the body corporate has the power to issue these contributions. If so then you have to pay.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry,
If you werent paying it .. you would end up being uninsured on any activity in the common area.
Someone smacked their head on your shared driveway .. you wouldnt be covered.
House and contents insurance wouldnt cover it either. Thats only internals, household items and internal fixtures.
And if your neighbours house burnt because of faulty wiring on your side of the property .. you'd also be liable. Flooding or neglect on your property that affects other property wouldnt be covered either.
Its insurance .. its a necessary evil .. get used to it.
For a pair of properties on the block there is usually an informal agreement. In other words .. an official body corp shouldnt be necessary. Whether you feel that works for you .. is your overall decision.
Again .. as stated above .. it shouldnt really be an issue.
Mick,
Sounds like you have a common driveway and that is all. If so are those figures correct?
$1400/annum to cover a driveway & $2600/annum for a driveway sinking fund.
Doesn't sound right to me.
Derek,
You have it in one, its the $2600 per annum that i would much rather be paying my mortgage etc.
Didn't sound right to me either!
Is there anyway you can check the figures?
They are much too high for a common driveway in my opinion.
Either that or it is a veeeeeery long driveway paved in gold.
If the figures are correct I see scope to reduce costs pretty easily.
The figures are correct.
Standard short font driveway
Hi MIck,
I suspect the $1400 completely covers both buildings and the $2600 is an agreement between owners to maintain their halves of the duplex so values are maintained.
Perhaps it is a temporary thing until the sinking fund reaches a certain level.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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