Buying Flats - what do i need to know?

[JohnA]

I have never bought flats before. The property I am looking at has 3 under the same roofline. They are being sold as one lot. The section 32 includes the title but it looks the same as normal unsubdivided block. There is further info included from land.vic.gov.au which identifies each separately - but calls them unit 1, unit 2, unit 3. There is also water rates and council rates for each separate unit.

In doing my DD what do I need to look for?

I am unsure if they are strata titled or not - how do I find this out for sure.
What do I need to know about Body Corporates - or whether it is relevant.
If the previous owners haven't followed through with registering the strata title or didn't organsie a body corporate becasue they owned the lot - what happens.


What should I check when looking to buy flats?

 

[devank]

There is also water rates and council rates for each separate unit.

I thought flats have one single rates under one single title.

 

[Jake Milne]

Hi John,

If it's not strata titled don't touch it. Banks hate company share and stratum titled properties and usually restrict lending up to 65% LVR. The process to have the titled transferred can consume a lot of resources.

The title certificate should show what type it is; which has to be included in the contract.

If there are 3+ units that share utilities such as sewerage connection they have to have a body corporate.

If there isn't one, it'll most likely have to be formed.

When looking at body corporate (owners corp) it's important to note how much the rates are, how much is in the sinking fund, are there any upcoming repairs that could be costly, what work was done recently and are there any stand out notes from the AGM?

Quite a bit of homework with this one by the sounds of it - to make it easier have a solicitor look over the contract for you - most will do it for free in hope that they'll get the business.

 

[JohnA]

I thought flats have one single rates under one single title.

Hi Devank

That is why it is confusing for me. When inquiring about the property I asked about rates etc so I could work out if it was a good deal and that is when the RE sent me the section 32. That is where 3 seprate council rates and water rates were attached.
I also asked the RE about strat and body corporate but that part of my enquiry has been ignored thus far. He is trying to organise an inspection with the current tenants.
So in the meantime I wanted to find out what I should know before I have a look at the properties so I go with open eyes.

 

[geoffw]

I wouldn't worry too much if they were not strata titled. There can be more hassles, but they can be well worth it. The difficulties will be with finance as already mentioned- but some lenders may regard three under one title the same as under residential. Make sure that what you buy is something the bank will lend you on.

Blocks can be regarded by financial institutions as commercial rather than residential. This limits the number of lenders and the amount they will lend, and can also restrict refinancing options.

Look in the forum for "flock of bats" for my experiences.

 

[JohnA]

Thanks for the heads up on 'flock of bats'.

 

[Rolf Latham]

I wouldn't worry too much if they were not strata titled. There can be more hassles, but they can be well worth it. The difficulties will be with finance as already mentioned- but some lenders may regard three under one title the same as under residential. Make sure that what you buy is something the bank will lend you on.

Blocks can be regarded by financial institutions as commercial rather than residential. This limits the number of lenders and the amount they will lend, and can also restrict refinancing options.

Look in the forum for "flock of bats" for my experiences.

Three on one title yu can get away to 90 on Resi terms.

From there to a typical sixnpaxk can still be done at 80 lvr under resi rates. Much will come down to the security and the borrower.

Although technically possible under policy more than a six paxk is usually commercial lending.

The Max. Have managed to get away at 80 lvr and Res I rates was 7 units on the one title

Ta
rolf

 

[chilliblue]

Hi John,

If it's not strata titled don't touch it. Banks hate company share and stratum titled properties and usually restrict lending up to 65% LVR. The process to have the titled transferred can consume a lot of resources.

Not true. Just brought a triplex in NSW with finance and it was treated as residential at 90%.

 

[Rolf Latham]

Not true. Just brought a triplex in NSW with finance and it was treated as residential at 90%.

Id have to agree with Jake that as a generality most people will get stuck with a 65 to 70%commercial style lend on 3 + OOT UNLESS they do a lot of homework or use a decent broker to do same.

Your 90 %(+cap lmi) is achievable with a couple of lenders, but is not the norm.

ta
rolf

 

[chilliblue]

That is interesting.

We needed finance on this purchase (it has been several years since having to do that) and went to several lenders without a broker who all were happy with 90%.

All stated that 3 was the limit and 4+ is where the lend becomes commercial.

Where it did get interesting is the banks valuation and our independant valuation.

Without knowing it, we used the same company but different valuers and the banks building replacement is $195K higher than the one we commissioned.

Currently in the stage of a "please explain if you wish to be paid".

 

[Player]

JohnA,

have a look at this post and the links:

http://somersoft.com/forums/showpost.php?p=898119&postcount=4

There should be some reading there to assist your investigations, refine your strategy and due diligence.

I just refinanced a block of four in one line. The three lenders happy to look at these these were ANZ (70 % LVR) and Suncorp and CBA (both 80 % LVR). I locked in resi rates fixed for three years with a small portion as variable with offset.

 

[JohnA]

Hi Player

Thanks for the link

You posed some questions which I am still in the process of answering.

I have been looking at a regional town and have been trying to establish if it is a good place to invest.

The attraction to this particular property is the potential for it to be +ve geared from the get go - if I am able to negotiate the right price. The land value on the rates is about right but the building value in my opinion is way over valued - and there is a correlation between the asking price and the rate valuation. It has also been on the market for a few months. The interior has not been updated in the last 20 years.

There are a few concerns and that being the high rates and high water rates - and if rents don't increase to keep up it may not stay +vely geared. They are currently all tenanted but what if they are not - still looking at demand in the area. Is this a good enough reason to buy - still figuring this out.

I have lots more homework to do - and if this doesn't turn out to be a good IP to buy then I will have learnt a lot in the process.


Also is it wise to invest in a PIA - such as the somers one? I have little knowledge about Excel so a DIY is not for me.

 

[Player]

Always learning

Hi Player

Thanks for the link

You posed some questions which I am still in the process of answering.

I have been looking at a regional town and have been trying to establish if it is a good place to invest.

The attraction to this particular property is the potential for it to be +ve geared from the get go - if I am able to negotiate the right price. The land value on the rates is about right but the building value in my opinion is way over valued - and there is a correlation between the asking price and the rate valuation. It has also been on the market for a few months. The interior has not been updated in the last 20 years.

There are a few concerns and that being the high rates and high water rates - and if rents don't increase to keep up it may not stay +vely geared. They are currently all tenanted but what if they are not - still looking at demand in the area. Is this a good enough reason to buy - still figuring this out.

Yep, regional council rates can often be quite high as a proportion of purchase price/value than comparable capital city assets. Yield of course should be higher in the regionals. You need to factor in the rates costs (as you are doing) when crunching your numbers.

I have lots more homework to do - and if this doesn't turn out to be a good IP to buy then I will have learnt a lot in the process.

Absolutely.......it's all in the learning. Even when looking and researching areas and then undertaking specific due diligence on individual properties, there is much to learn from each one. Holds you in better stead when you finally find the "right one" for your circumstances and pockets.


Also is it wise to invest in a PIA - such as the somers one? I have little knowledge about Excel so a DIY is not for me.

I don't use any software personally. There are a few on the market and there has been favourable feedback given on this site from the Somers product.

Generally I do manual number crunching. If it stacks up and my location macro reasearch ticks the boxes, I go for it.

Enjoy the hunt

 

[JohnA]

Negotiating price

The agent has confirmed that they are on one title and there is no body corporate.

Because they have not been strata titled does that make them less valuable?

A 3 bedroom home with 1 bath on same size land is around 180k mark. Council rates of 600, water rates 900

Owners are asking 250k for the flats - collectively that is what council rates say they are worth. (independently rated added together = asking price). Land component is only 50k for the whole 700sqm.
The rent for all 3 is 330k
But council rates are 600 x 3 and water rates 900 x3.
Flats approx 30 years old - interior really dated and bathrooms need attention, paint and new carperts/ lino

No one bedrooms to compare to. There are OTP 2 bed with garage units for sale for 240k in same town.

I think a good buy would be if I could get them for 180k (I think that is a fair valuation). Purpose for buying is CF not CG. CG is a bit speculative in this town - although prices have gone up 12% in last 12mths.

What other homework can I do to see if I am buying well - and what should be the upper limit?

Is it rude of me to offer 80k below asking? Has anyone done this? How do you keep your nerve?

 

[Rolf Latham]

Negotiating price

The agent has confirmed that they are on one title and there is no body corporate.

Because they have not been strata titled does that make them less valuable?

A 3 bedroom home with 1 bath on same size land is around 180k mark. Council rates of 600, water rates 900

Owners are asking 250k for the flats - collectively that is what council rates say they are worth. (independently rated added together = asking price). Land component is only 50k for the whole 700sqm.
The rent for all 3 is 330k
But council rates are 600 x 3 and water rates 900 x3.
Flats approx 30 years old - interior really dated and bathrooms need attention, paint and new carperts/ lino

No one bedrooms to compare to. There are OTP 2 bed with garage units for sale for 240k in same town.

I think a good buy would be if I could get them for 180k (I think that is a fair valuation). Purpose for buying is CF not CG. CG is a bit speculative in this town - although prices have gone up 12% in last 12mths.

What other homework can I do to see if I am buying well - and what should be the upper limit?

Is it rude of me to offer 80k below asking? Has anyone done this? How do you keep your nerve?

get a residex or RP data report to help you with it a little, at least it should give the last sold price.

If the 250 is a reasonable listing price,a discount of 32 % on asking price would be sensational.


ta
rolf

 

[Jake Milne]

Because they have not been strata titled does that make them less valuable?

Yes. Because your buying market is smaller.

No one bedrooms to compare to. There are OTP 2 bed with garage units for sale for 240k in same town.

This concerns me. You're looking to buy 1b's @ 180K ...If you can buy new 2b's at that price the potential to make money from renovation on a 30y.o apartment is very low. Also if there are no comparables valuers will become very conservative.

I think a good buy would be if I could get them for 180k (I think that is a fair valuation). Purpose for buying is CF not CG. CG is a bit speculative in this town - although prices have gone up 12% in last 12mths.

If you're buying for CF rather than CG then comparable yield is important. How many similar properties are to let? How much are they renting for?

What other homework can I do to see if I am buying well - and what should be the upper limit?

Msg me your email and the address; I'll send you a free residex report.

Is it rude of me to offer 80k below asking? Has anyone done this?

It's not rude, it's business; and yes all the time. If you're going to make a low-ball offer you better have the research to back your price. When they come back and say that's too low, you can tell them it's based on comparable evidence, thorough research and think it's fair value.

How do you keep your nerve?

Practice.
The first time you do it is a nail biter, just deal the best you can and treat it as a learning experience.

Also, when making the offer try to get the agent on side... The agent is motivated by the sale so he/she gets commission. They'll often let you know what price the property would definitely sell for - the lower the offer is below what the agent is comfortable with the harder you'll have to fight for it. Talk to the agent before you submit in writing.

 

[JohnA]

Rolf - yes 32% is a lot. Am I being unreasonable or idealistic becasue I would like to get as close to positively geared as I can?

Upper limit i'm thinking is 200k because then I have to add the stamp duty and other purchase costs.
It has also been on the market for 4 months - so if it is a good deal at 250k then why hasn't someone snapped it up?


Rp data search as you suggested was interesting/ confusing for me.

It listed each flat separately with flat 1 last sold 12/1999, Flats 2 & 3 unknown and the whole lot listed by street number was last sold in 05/1980. No prices were listed.

There are so many choices / reports to buy on Residex - has me lost. What tobuy and is the $ worth it?

 

[Rolf Latham]

It has also been on the market for 4 months - so if it is a good deal at 250k then why hasn't someone snapped it up?

I guess you might find that out when you try and get finance.

I know we have been through this in the thread earlier, make sure your lender will lend to the LVR you require for

1. This security
2. The locn

ta
rolf

 

[Jake Milne]

I guess you might find that out when you try and get finance.

Yep. I agree with Rolf