A complex purchase - please help

Hello All,

I will get to the questions eventually which i believe belong in this section. Please tell me if I should post this in another section, as i am not sure how they all interact.

This is my first post so please be kind to me as I am a true property novice.

I have been considering purchasing an unrestricted (No Bylaws) company title unit in inner western Sydney.

It is quite a complicated transaction however I am eager due to the affordability of the unit in a inner city suburb.

The situation is:

The building is a tad over 100 years old. The landlord was the stingiest owner ever and looks like he never spent a $1 on the place.

The block has 8 apartments with a number of them currently rented out.

It appears the council came along and ordered fire safety improvements in the building. The owner has then created a company title in which to sell off each unit to the public. At completion of the sales he will withdraw funds from the deposits to pay for the repair work which is currently in its 3rd and final phase of completion.

I am a little emotionally attached to purchase the property because i want but can't usually afford an inner city apartment. I have planned the renovations in my mind already and can picture myslef living in it. And although it is complex, Maybe if i work through it all there is a potential big reward at the end. (Good unit with good capital growth and a place will enjoy living in)

At first I rejected the idea because of it's complexity but as the majority of units have been sold. I figured that the other purchasers must have done due diligence and were confident enough to buy into it, which has made me look again.

I have raised the 20% deposit as required by the bank and am on the verge of ordering a pest and building inspection.

The major issue is:

There is currently no company/strata plan. The contract has estimated a $3000 per unit - Water/ council/ administration.

This obviously does not include repairs to common areas, which definitely needs some work done on them. As well as any other major building issues that might exist. Who know how the electricity wiring or plumbing still operates on 100 old building.

It is clear, without an adequate company cost/ repair agenda in place or purchasers are taking considerable risk in unknown potential liabilities to repair common areas or other common building issues that we are unaware of due to the lack of a complete building analysis or maintance evaluation. All we are working off at the moment is the council warning and individual unit inspections. You also have the risk that new owners will not be able to pay needed levies because they were unaware of the potential liabilities at purchase.

So far on speaking to building and pest inspectors their analysis will be basically limited to the purchasers unit with a general look at the condition of the overall building.

For me to have confidence I really want an inspector to tell me whether or not the company will soon have to fork out for new electricity/ plumbing/ stair case/ roof, whatever. So I at least can guess that sooner and later the new owners of the building will have to pay potentially massive special levies that I am worried I will not be able to afford.

Another issue is:

One month after completion of repairs/ settlements. A company general meeting will be convened which I guess is where all the shareholders will implement a company/ strata manager. And from then on create bylaws etc and work out sinking fund etc. The accounts will be starting from $0

- I am taking a risk, not knowing what the other shareholders have in mind as to the direction of the building.

The contract states the company could try and turn itself into strata. Which I believe would be a smart way to go particularly for the future value of the apartments. I am actually waiting on a call from council to see if this is possible.

Question: Why might the new shareholders not want to change form a company title to strata title? Is it difficult to switch to strata title?

I am thinking the only reason might be the cost of solicitors, new contracts etc

But does turning company title into strata title create problems the owners might want to avoid?

Question: under independent company/ strata management, do the new owners have a lot of choice as to the timing of repairs and amounts needed for sinking funds etc.

I am unsure as to how strata/ company managers might operate.

I am hoping the other owners will be of similar thought to me. No need to rush, if the stair case need repairs or the common area needs repainting, just slowly build up the sinking fund and when there is enough cash in it spend it on the designated goal.

Or could this happen: Company manger comes in and suddenly orders a complete building evaluation costing $$$ payable by special levy that reveals a number of repairs will need to be done immediately payable through Special levy$$. Before too long I can't pay up.

Ok. I probably have a lot more questions for the experts on this site but i will leave it there.

Fell free to tell me I’m crazy for considering a risky option. I guess what I am looking for is good news to help me justify proceeding to the next stage and forking out $600 for the building and pest inspection.

Thanks for any comments in advance
 
I am a little emotionally attached to purchase the property because i want but can't usually afford an inner city apartment.
Never good for investing - leave the emotions at the door.

I figured that the other purchasers must have done due diligence and were confident enough to buy into it,
Bad assumption to make. Might be right though.

You also have the risk that new owners will not be able to pay needed levies because they were unaware of the potential liabilities at purchase.
I'm sure their legal people doing the conveyance/s will have issued the appropriate warnings - at least you'd hope so in this day & age. And there will be more than one of them.

For me to have confidence I really want an inspector to tell me whether or not the company will soon have to fork out for new electricity/ plumbing/ stair case/ roof, whatever. So I at least can guess that sooner and later the new owners of the building will have to pay potentially massive special levies that I am worried I will not be able to afford.
Well that's why you are paying them some money :)

I am taking a risk, not knowing what the other shareholders have in mind as to the direction of the building.
Yes, but you know the risk/s

The contract states the company could try and turn itself into strata. Which I believe would be a smart way to go particularly for the future value of the apartments.
Yes - not so much value although it will have a positive impact but moreso the saleability is better with strata.

I am actually waiting on a call from council to see if this is possible.
It is possible - it gets done frequently. Council won't say definitely one way or the other - don't wait by the phone.

Question: Why might the new shareholders not want to change form a company title to strata title?
Cost involved. Happy as is. Why rock the boat etc etc. especially older OO's

Is it difficult to switch to strata title?
Yes & No. Anything can be done with money. Then it is just a matter of how much & by when.

But does turning company title into strata title create problems the owners might want to avoid?
No - quite the opposite.

Question: under independent company/ strata management, do the new owners have a lot of choice as to the timing of repairs and amounts needed for sinking funds etc.
The body corporate does to an extent but they still must comply with the laws surrounding strata - of which there are many.

I am unsure as to how strata/ company managers might operate.
Why? Then make it your business to find out BEFORE you commit funds.

I am hoping the other owners will be of similar thought to me. No need to rush, if the stair case need repairs or the common area needs repainting, just slowly build up the sinking fund and when there is enough cash in it spend it on the designated goal.
Hope is not an investment strategy. Assuming all the others think like you is probably asking too much :- probability = zero.

Or could this happen: Company manger comes in and suddenly orders a complete building evaluation costing $$$ payable by special levy that reveals a number of repairs will need to be done immediately payable through Special levy$$. Before too long I can't pay up.
Yes this is a possibility. It is often the reason older people on fixed incomes have to sell out of a unit they have lived in a long time - can't raise cash for the special levy.

Fell free to tell me I’m crazy for considering a risky option.
If you know all the risks and are still comfortable - go ahead it could make a tidy profit. If you are betting all your life savings on this one - then maybe that is not good risk management - because it could turn out not as you would want or take longer etc.
 
Thank you for your comments

Regarding the point of how strata/ company managers might operate. I actually tried this morning to find out more by phoning strata mangers directly, nobody wants to take the time speak with me though as I am not a client.....
 
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