4 things to look for when buying a strata property

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Expert Advice with Ahmad Imam 27/07/2017

Here’s a startling, but true fact: In our three biggest capital cities, more apartments are being built than houses.
In Sydney, it's been that way for more than 20 years, while in Melbourne and Brisbane it's only over the past few years.
Do I think it will ever go back to the old way?

No. I don't.
That's because our population is growing, there is limited land supply in those cities, plus more and more people – young and old – are choosing to live in attached dwellings.
The good news is that investing in units or townhouses can be a solid decision...
As you long you only choose investment-grade properties in the right locations to start off.
If you’re going to successfully investment in a unit, then it’s important to understand the ins and outs of owning a strata property.
So to help you buy a good, rather than a bad, strata property, here are four things to look for.

1.        Owners vs. investors
All owners in a strata scheme are collectively called a body corporate or owners corporation.
What this means is that they are responsible for the collective management, maintenance and insurance of common areas and facilities.
It's usually better to have more owner occupiers than investors in the block because they're more likely to proactively keep the building to its optimum level.
Now that's not because investors don't care.
It's more to do with the fact that investors aren't onsite and can't physically see any problems.
One of the other keys to successful strata investment is buy into a smaller complex, because they are more desirable to future owner occupiers who are prepared to pay more for property.
A smaller body corporate also means fewer owners to deal with and fewer owners who need to agree before a decision can be made.

2.         A numbers game
In the rush and excitement that goes into buying a unit, many buyers fail to have a professional scrutinize the books and records of the body corporate.

This leaves them clueless to its current finances and unaware of the issues it might be facing.  
A bad example might be that as a new owner you will automatically have exposure to major expenses or even law suits with neighbours!
The secret is to make sure that you check out the financials before you buy, including how much is in the “kitty” for a sinking fund for future repairs.

3.         Repair history
Similar to checking out the books, you must complete a thorough investigation into the history of the building.

Has the building got ongoing problems that are costly to fix?

Will you be landed with a share of the bill to get a new roof within weeks of buying the property?
For example, many of the new multi-story buildings I’ve been involved with over the past few years have had water issues with their balconies.

While sellers legally have to disclose any material facts about a property, some are actually selling because they don't won't to deal with an ongoing repair problem.
Don't get lumped with a problem that you can avoid.

It's as simple as getting a hold of past committee meeting minutes, which can save you thousands of dollars in the long run.

4.         Maintenance schedule
It's an unfortunate fact that many bodies corporate don't adequately plan for future maintenance.
This can be especially true with older schemes, which means you could inherit a property that hasn't been adequately maintained over the years.
And that usually means money out of your pocket when the inevitable repairs (that could've been prevented!) start cropping up.
As well as assessing committee minutes for major problems, check whether the sinking fund is appropriately financial to undertake a long-term maintenance regime.

The bottom line...

The conclusion is that strata schemes are only as good as they owners within them.
If you have a dormant body corporate that usually spells trouble for the future profitability of the complex.
Like I've said, investing in investment grade units and townhouses can provide capital growth potential and solid yields.
But not if you buy into a scheme that doesn't even have any money saved for a rainy day or one where the owners don't seem to care about the upkeep of the building.
 

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Ahmad Imam is the Senior Property Strategist at Metropole Properties in Sydney, is a highly skilled wealth strategist and a passionate property investor. He has a degree in Commerce, is a licensed estate agent in both NSW and QLD and has personally coached and educated hundreds of clients to create wealth through property. He is a regular commentator for Michael Yardney's Property Update.


Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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