Sinking Funds and Purchasing

Hi,

A thought I would like to open up for discussion.

There are those here that have bought and sold whole unit complexes.

As an owner of a townhouse, I know that I have to pay a sinking fund. This is usually a projected cost of repairs determined by a strata manager and paid fractionally on a per quarter basis.

In looking at buying whole complexes, how do investors factor in this?

For example, buying a single unit. One would check the sinking fund level, to see if its up to date.

A lower than expected fund, would mean the new owner may be up for some unexpected costs, if a schedule repair is due.

But with a whole complex, one that only has one owner, there may be an instance where this fund is not topped up, in fact it may not exist at all. In such cases, Im guessing such units are discounted.

But discounted to what extent?, is a strata manager consulted to see what the appropriate fund level should be and use this as a means to negotiate down?

This point is for both strated and non-strated complexes.

I need to names, but I would be interested to hear real-world experiences in this.

Michael G
 

Sim

Administrator
If you own an entire block, then you control the strata - you don't even need an external manager - all expenses are yours, so you just manage it all yourself.

A sinking fund is simply a "buffer" mechanism - kind of like an enforced savings plan to make sure there is enough money to cover repairs - especially larger ones - without creating undue financial burden for the individual owners when you are suddenly faced with a large bill.

So you don't really need one at all - especially if you own the lot and actually have access to funds for repairs... leave the money in your offset account and save yourself some interest.

Someone here should be able to clarify what legal requirements there are in each state for strata properties, but I think most of the regulations deal with making it fair for all the owners - as opposed to things you MUST do just because it's a strata titled block.
 
Sim,

I was thinking of how a whole block of units would compare to prices of individually owned ones.

As you say the owner of a complex would be their own boss. So would it be fair to have 4 units owned by one owner compared equally with 4 individual ones, when the single owner setup may not have the sinking fund that the individual ones are more likely to have?

For example;

A non-strata unit is valued less than a similar company title unit.
A company title unit is valued less than a similar strata unit.
A strata unit is valued less than a torrens titled unit.

These differ because of ownership rights, but my point above has been restated below...

So would a unit that has no sinking fund (eg because owned by a single owner) be valued less than a similiar unit that has a sinking fund?


After a while the sinking fund could amount to $1000s in uptapped funds.

Just had a thought, what if someone was to buy a small complex off individual owners, then being the single owner, remove the strata management and tap into the sinking fund? I wonder what the pros/cons of that would be?

Michael G
 
Hi michaelg

Not wanting to dilute your thread at all, but it might be good if some of the other forumites indicate what sort of B/C fees are usual. I realise that this is a bit like asking how long a piece of string is, however, as I am new to this and am in the final throes of settling a new duplex unit, I would be interested in finding out what is a 'normal' contribution...if there is such a thing.


Pedro
 
Originally posted by michaelg
I was thinking of how a whole block of units would compare to prices of individually owned ones.

[snip]

For example;

A non-strata unit is valued less than a similar company title unit.
A company title unit is valued less than a similar strata unit.
A strata unit is valued less than a torrens titled unit.

These differ because of ownership rights, but my point above has been restated below...

So would a unit that has no sinking fund (eg because owned by a single owner) be valued less than a similiar unit that has a sinking fund?

Whole blocks are worth less than the sum of the strata equivalent units for a number of reasons.

Finance: 70% LVRs are common as LMI's don't like exposure to 100% of building.

Bulk Discount: Cheaper by the dozen. Also the running costs should be less so a competitive market discounts for that.

Maintenance Deficiencies: The presence of a sinking fund implies the previous owner was an idiot or is cooking the books. Building owners generally do essential maintenance only. Essential is defined by the owner. So what if the hall carpet has holes in it? Discount the price to reflect repair cost (exactly as you would a house).

A point on NSW Stamp Duty. Seems like OSR likes to group your purchases together even on older buildings. So if you buy 10 strata units @ $100K in the same building you pay stamp duty on $1M which is a lot more than 10 times the duty on $100K

The price differential is almost 100% because of finance. That is why fix a finance problem and you make out like a bandit.

Also remember that builders/renovators make money buying flats and strata titling. Very few builders go back the other way. There is a reason for that.
 
Top