Sinking fund thoughts

Hey all,

Just put an offer in on an apartment I'm interested in, I had a few concerns that the sinking fund is awfully low however after looking at a few older threads perhaps it's not as bad as it seems. So I'd like your thoughts, please.

The building has 16 units and a sinking fund with $4700 in it, $2300 in the admin fund. That doesn't seem like a lot? Strata fees are $453 per quarter for the two bedrooms, I presume the single bedrooms probably pay less.

Anyway, these rates are similar to what I'm paying at my other unit two suburbs away that has 18 apartments. Difference is, the building isn't kept anywhere near as neat. Electric gate to undercover parking is broken, internal hallway lights seem to all have globes blow, gardens could be kept a bit better. So I'm thinking they're probably just paying too much and receiving too little in return. Obviously I'll find out more about this once I have a strata report done.

I accept because of the area's different demographic, it will never be as nice (probably no point fixing the gate), but is it naive of me to think once in there I can look to re-negotiate management and cleaning fees to better rates? Then, perhaps with the money saved we can re-carpet the hallways and get the lights back in action (I presume this is a liability thing too?).

Cheers
Greg
 
The building has 16 units and a sinking fund with $4700 in it, $2300 in the admin fund. That doesn't seem like a lot?

Greg, I purchased a 2brm unit recently with $88,000 in the sinking fund and $27,000 in the admin fund. Not much chance of them raising a special levy there ;) (and it is very well maintained)

I also saw another unit in a complex of 22 that had -$8,000 in the sinking fund and +$2,000 in the admin fund. Reading the strata report on that one - they are getting quotes for painting, carpets in common areas and some building consultants. Do you reckon they might be raising a special levy at the next BC meeting?......you betcha :rolleyes:

Yours is a bit 'thin' but you'll need to read the strata report to see what they normally spend in a year and what they know they should spend in years to come. (they normally have a 2 year forward budget) The risk for you is they'll raise a special levy to pay for it. But you can use that to haggle the price down if you still want it.
 
Greg, I purchased a 2brm unit recently with $88,000 in the sinking fund and $27,000 in the admin fund. Not much chance of them raising a special levy there ;) (and it is very well maintained)

Yup, that's pretty well covered. Was it a newer complex? The one I'm looking at is 1960, forgot to mention that.

Yours is a bit 'thin' but you'll need to read the strata report to see what they normally spend in a year and what they know they should spend in years to come. (they normally have a 2 year forward budget) The risk for you is they'll raise a special levy to pay for it. But you can use that to haggle the price down if you still want it.

Yeah, I found out how much was in their prior to making an offer. After finding this out I lowered the offer by $9,000 to give myself some breathing room.

Cheers
Greg
 
With 16 units there won't be a manager, so the upkeep of the building is entirely reliant on the owners via their voting powers. By joining the body corporate committee you will be in a position to have input as to what money is spent on which services, priotorise "things to do", and also be able to search out better deals.

We owned a unit in a building of 8 units, most of the owers were resident retirees. They ran the building on a shoe string, bought light bulbs on special, did the gardening (lawns were mowed by contractor) and generally haggled to get the very best price on any expenditure.
Marg
 
We owned a unit in a building of 8 units, most of the owers were resident retirees. They ran the building on a shoe string, bought light bulbs on special, did the gardening (lawns were mowed by contractor) and generally haggled to get the very best price on any expenditure.
Marg

That's pretty much been my experience with the first place I bought. I was very fortunate in that a few people were leaving the committee having sold out and I got straight on. Even more fortunate, one of the guys is a pretty frugal man probably in his early 50s - he's renegotiated everything. His son owns lawn mowing/cleaning business that undercut all the other offers we had, and everything to be done is itemised so he can be held to account, and he also managed to re-negotiate our strata manager fees. In all, he's knocked about $4,000/year off the operational costs. He's a pain in the ****, so I keep him at arm's length, but it's been handy to watch :)

Interestingly the agent has spoken to the owner and I might have a shot. I thought I was on the verge of low-balling taking into account my $9k buffer, as the unit in fairness is probably worth within $5,000 of the asking price. Agent seemed reasonable honest, said the figure is reasonable but the owner is reluctant to sell it at the very bottom of the range for what he'd accept before the first open house. I said to the agent the offer is what it is and it stands until lunchtime tomorrow as per the original offer. So he's going to tell the vendor and let him sleep on it.

I will let it run past the deadline first but if that doesn't yield anything I may consider the extra $1-1.5k he's looking for. Maybe.

Cheers
Greg
 
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