Sinking fund

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From: Sergey Golovin


G'day folks,

I would like to explore "sinking fund" arrangements if I may please.

I have recently purchased new townhouse in the new (small) block of 6 and we had first strata meeting.
One of the questions was how much shell we put aside for sinking fund.
To my surprise other residents showed extremely common sense and practical approach to that issue despite the fact that they all owner occupy and have nothing to do with investment as such in regards to existing building. I do not know if they have any other properties elsewhere.

There was three possibilities presented at that meeting –
1. To put aside as much as possible. The more money in the fund the secure the future.
2. Enough to cover the expenses (this is where I am coming from).
3. Put as little as possible (the minimum required by law) simply because the building is new and does not require to much of maintenance (it also on 7 years warranty) and all money we put aside will not be enough to cover all expenses any way ($12,000 in today’s money will buy us new driveway if required, but in 10 years time all those money would be devalued and represent only half of the original buying power) but we can use available money elsewhere for now. On other hand – why put all those money into the fund (which will sit there in the bank for years to come) and sell the property and let someone else’s rip the benefits.

Guess which way did we go.

What do you think is money in the fund good idea?

Serge.
 
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Reply: 1
From: Sergey Golovin


When it is new not problem, with paying the minimum required by law into the sinking fund, but what are we going to do 10 years down track I do not know.

What is your opinion folks?

Serge.
 
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From: Dale Gatherum-Goss


Hi Sergey!

I don't like the idea of the money sitting around. It is sometimes too tempting for someone to abuse, and, for an investor, it means that money is sitting in a place where it cannot be used towards further investment. That cannot be good.

And, who decides what happens if one of the owners decides to sell and wants their money back?

Too messy for me and no rewards to compensate for the losses.

Good luck anyway and have a great year!

Dale
 
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Reply: 1.1.1
From: Sergey Golovin


Yes, thanks Dale,

I do agree with you in regards to - "inability” to use all those money, which are hold in sinking fund for many years to come.

I guess we probably have to put more money away once building gets bit older, let say 8-10 years old, or wait till something gets broken down and raise required amount of money then.

I do understand - it is nice to see "healthy" sinking fund when buying into existing building/structure, but when it is brand new and on the warranty... maybe minimum amount paid into the fund is good enough? I do not know. Anyway I did go with the flow, we agreed on minimum amount required by law (whatever it is/was, I can’t remember $600 (?) per year for the whole lot)

Dilemma...Oh well…we’ve got 7 (?) years warranty on the building.


Thanks folks.

Serge.
 
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