Buying into ANY Strata Building

27/6/19

I recently posted a blog covering what to look for when buying into a NEW Strata Building and I had promised a more general post about buying into a Strata Complex that’s existing.

In light of the recent Mascot & Opal Towers matters I thought it needed to be written, aside from all that we’re hearing in the media, there’s a lot here but it’s worth noting all of these points!

I’d really recommend reading this and as much as you can before going out to look at apartments, you simply can’t afford not to. We now have in Mascot, uninhabitable properties where leases are easily broken and owners paying mortgages and extra levies with no income and a property they cannot occupy. I can not imagine the toll this is taking on peoples lives.

One thing that sticks with me is that we as Australians have more consumer rights and guarantees for an appliance than an apartment. Think about that for a second.

FACTS:

  • In NSW alone about 15% of the population live in Strata Apartments that’s over 1.1 million residents in NSW  according to the Australian National Strata Data 2018 report carried out by UNSW and Strata Community Association
  • A massive 48% of these are occupied by tenants
  • Nationally it’s 2.2 million so NSW holds a huge portion of Strata residents

As a Property Manager, property in Strata titled complexes i.e. a Strata Plan, make up the majority of rental properties managed for many agencies and many investors specifically choose to buy into a Strata Plan for their investment property.

So why do I invest and think others invest in apartments specifically?

When you buy into a Strata plan, you’re effectively buying allocated airspace, aside from what’s affixed to the floors and walls those structural floors and walls are owned by and therefore maintained by the Strata Plan.

So, if you get your airspace and fit it out well and maintain your fixtures and fittings then you essentially have less maintenance and easily lettable space, for everything else that’s a common area issue you can report that to your Strata Managing Agent but be aware of all of the following!

As an investor, your property manager should know what’s what and do the liaising on your behalf with Strata.

Essentially, I believe that if your property in a Strata Plan is in a good location and that the complex itself appears to be well maintained then you have a good investment but there are a few things to look out for and be vigilant about before committing;

Check the By-Laws              

Each Building has a set of By-Laws, rules to live by, that apply. A lot of these are standard but you need to know what’s allowed and what isn’t. Look for things like Pets, when you can and can’t move in and out, smoking etc. Definitely read through them all. Tenants MUST be provided a set of the By-Laws when they move in.

Carry out a Strata Search with Budget Forecasts included

Any Strata Building has running costs as well as forecast future upgrade costs. Make sure that the building has built up a healthy fund known as a Sinking Fund, that shows a decent balance for what the building will need down the track. New lifts, painting and sprucing up. Low balance and when necessary upgrades come up all owners will be hit up for some quick fund raising regardless of when you bought in. These searches will also show how good everyone else is at contributing or do are the arrears huge. Your conveyancer / solicitor should be able to seek and assess a Strata Search.

You’ll need to check some of the past meetings, you need to know what’s going on and that there is an owners committee that cares about the building.

I’d also be looking through as many common areas as you can, look for cracks, signs of damage or poorly maintained areas. It could be an indicator for a building where not a lot gets done!

Check if there are any capital works proposed or that might be needed.

This should be highlighted in the Strata Search and noted by your solicitor or conveyancer but you want to question and know if any major projects are in the works that might be at your expense. Things such as dealing with upgrades or concrete cancer involve a lot of work and long-term expense. They also highlight that the building may have issues that you don’t want to be part of or that won’t make it worthwhile investment. If you’re set to lease this property then you want to make sure that there’s nothing in the works that will be an ongoing inconvenience or turn off to potential tenants.

Any other planned developments in your area

Is your view going to be obstructed or street parking set to be lost due to a new complex going in? These are all things you need to know and can find out by filtering through Development Applications via your local council online or by calling. Take a walk around the area and try to pin point land that might be slated for redevelopment, this can effect infrastructure down the track and the availability of local resources. We’re also hearing a bit too often of damage to existing buildings when a new one goes up close by

How much are your Strata levies?

Now this directly affects your bottom line, each and every quarter. The more amenities the building has the more the levies. Do you need or want access to a pool or onsite building manager? Those costs go up over time and not down as does the upgrade of elevators the more a complex has the more it’s going to cost to upkeep and that’ll come down to how the sinking fund looks now and is maintained. Lots of Strata plans need to enact Special levies to raise money when necessary upgrades occur so you need to be aware of what the building will need down the track and be prepared to contribute. You therefore can’t always budget on the current levy amount as some buildings see that rise year on year, to one of my investments there’s been a 45% increase in 7 years.

Design & Appearances

Appearances, you know, can be deceiving. You need to have a thorough look at the building  and look at it as an outsider. Ask yourself:

  • Impression as you walk up to and through the building
  • Is it well presented and maintained, lawns and gardens tidy
  • Do the exterior, internal or common area walls have any issues like cracking, peeling or running paint etc.
  • Pay attention to the materials used internally and externally as well as the overall quality of the construction. If in doubt take someone along to inspect with you
  • If possible, research the developer, check out their other sites, their overall build quality and reputation. Good to see how other builds are holding up down the track, They NEED to have a good track record.
  • Is the car park well lit and dry? If it’s not dry then find out why

Internally you want to make sure the apartment itself has a good layout, light throughout the day and air flow are specifically important. Tenants look for these things. Make sure bathrooms have some form of ventilation preferably a window or at the least an exhaust fan. Not all apartments are the same, you want to make sure the bedrooms are reasonably generous and the living room. An internal laundry or fixtures for a washing machine at the least are valuable additions.

If parking is a feature then check its location and accessibility as well as the carpark generally, is it well lit, laid out and reasonably maintained.

Lastly on this point. You need to consider your ideal tenant that you’re seeking and it needs to appeal to that demographic, families, couples and singles all have differing needs so consider that when factoring in the location, size and layouts.

And FINALLY

Don’t look at an apartment and fall in love, really look around and ask questions. Do all of your due diligence and one would hope that you buy into a (hopefully) hassle free strata complex. Ask agents, ask Strata Managers and people in the area for advice on building history.

There’s a lot to think about, along with financing your purchase but these are valid points you need to consider before committing. If it will essentially be an investment property then you don’t need to be able to live there yourself and you personally don’t need to live it but it needs to be attractive to future tenants and have the right layout and management behind it, to make it a worthwhile investment in the long term.

It’s obvious that with the recent events impacting Opal & Mascot Towers that reforms are needed when it comes to Building Regulations which are finally being looked at. You can read the latest here on what’s being proposed by the NSW Government to step in and get involved on this important issue.

Happy to help with any advice you might need.

Happy Buying- Antonio