Sinking Fund - How Much Should There Be In It?

[kierank]

I have signed a Contract on a block of 4 units which are strata-titled. The block was built in 1984-5 at a cost $170,000. The person who built the block has owned them for the whole 22 years and has recently died.

His executors are selling the block. During due diligence and disclosure, I have uncovered that a Sinking Fund has never been set up. Routine maintenace on the block has slipped in recent times and the block is a bit tired; nothing major but things such as guttering needs replacing, stairwell needs painting, stairs need re-carpeting, garage doors need painting, etc. If there was money in the Sinking Fund, then this work wouldn't be an issue but there is none.

I wish to lower the purchase price to reflect the absent Sinking Fund. How much money should one expect to be in a Sinking Fund. Is there a quick calculation that one can do to come up with a rough guide? I would be happy if someone could just give me a range.

KieranK

PS

After settlement, I will be getting a QS to calculate the Sinking Fund contributions plus a Depreciation Schedule but I would like some indication now during my negotiations.

 

[skater]

I own a block of 4 strata-titled units that are probably just a little older than yours. It has been bought & sold several times since built & there has never been a sinking fund. It really isn't something that I am planning on establishing anytime soon either. However, if I was to sell the units individually I think I would have to put something together. I would be very interested to know the outcome.

 

[GoAnna!]

Hi Kieran,

I think it would be unusual for some-one who owned the full set of a multi dwelling property to have set up a formal sinking fund although they might have their own method for ensuring that they had sufficient funds when maintence issues arise.

I would think that in this case that it would be as simple as working out what the repairs are going to cost and when they would need to be undertaken and ensure that this is reflected in your purchase price - the same as for any purchase I guess, single or multiple.

I am unclear what your plans are should you buy them but my understanding (please check with your accountant as I am not one!) that the sinkimg fund contribution cannot be claimed however expenditure can in the usual way. You may want to take this into account.

For this property is there an actual formal body corporate in operation or was it just run as a single title property?

 

[kierank]

For this property is there an actual formal body corporate in operation or was it just run as a single title property?

A Body Corporate has been set up and registered but it has never been set in operation - that is, there has never been any meetings, no contributions to a Sinking Fund or Admin Fund, etc

My strategy for the block is "buy and hold". One of the attraction of a strata titled block is the management of risk - down the track, if caskflow gets too tight or if I decide the growth in this suburb is not that great, etc, I can always unload 1 or 2 of the units. If I did this, then my buyer would expect money to be in the Sinking Fund - if there isn't any, then I will have to contribute (like Skater stated above).

I am really using "there is no money in the Sinking Fund" as a negotiating gambit. Hence, this thread is really about how much can I reduce the price because there isn't a Sinking Fund. If anyone has any ideas, I would appreciate them.

If I do succeed in getting the block, it is probably unlikely that I will put money into a Sinking Fund - like Skater, I understand one can't claim the contibutions as a tax deduction; once the money is spent on maintenance, then one can.

KieranK

 

[skater]

Gee, your doing well. We don't even have a Body Corporate. I don't even know where to start to get that happening. Would like to reno & sell the units off individually in the future, but as they are about 8 hrs drive from my place & labour expensive where they are, it has been put on the back burner for a few more years.