Buying a unit, townhouse or apartment can be an affordable way to enter the property market.
But before you sign the dotted line it pays to look into the history of the property and its strata scheme.
Commissioning a strata report before you buy can tell you almost everything you need to know about a property and its people before you’re tied to it financially. A strata report will ensure you don’t get less than what you expect – or bite off more than you can chew.
Do your homework
If you intend to live in your unit or rent it out to tenants, you need to know what the place is like to live in, how it’s being managed and whether or not your neighbours get along. If a property is unpleasant for an owner it’s likely an investor will have problems retaining tenants. You’ll also want to know where the property is today and where it might be in 5-25 years time. The last thing you want is for the complex to be sold out from under you, or to foot a major damage bill for leaky pipes.
Here’s how to get started
Check the books before you buy. The purpose of the strata search is to review the accounts and records of the property that you’re looking to purchase. Just like you shouldn’t judge a book by its cover, there may be issues with your building that aren’t apparent at first glance. Don’t judge a building by its facade. At best, a strata report can reassure you that the scheme you’re buying into is a nice place to live with well maintained amenities. At worst, it may uncover fiscal mismanagement, disputes between owners, high levies or unresolved legal issues.
A badly managed strata scheme can affect the re-sale value of your property, blow out your budget and your net rental return. Excessive strata management costs also have the potential to affect your ability to service your mortgage. Fortunately, there are lots of online resources and professionals out there to help you prepare a properly researched, in-depth report. You can employ a specialist strata investigator, or, ask your conveyancer if you’re not ready to do it yourself. Just remember, it’s important to exercise due diligence when it comes to this search – do it with the same care you’d put towards a property purchase or business investment.
Understanding the strata report
What you are looking for is evidence that the strata plan you’re buying into is well-run, well-maintained, adequately financed, and planned well into the the future. Your report should include detail around:
- The financial status of the scheme;
- Pending or past building works;
- The cost of current levies;
- The likelihood of special levies;
- A 10-year budget plan; and
- All expenses for the past two years.
You’ll also find general information on insurance (including strata insurance), building finances, bylaws, disputes and other property or people related matters.
What to look out for
- Is the property adequately insured?
- Is the complex financially well managed (consider age of the building, size of sinking fund, etc.)?
- Does the building have any defects? How are they being addressed?
- Does the complex meet council and safety regulations?
- Is there any evidence of legal action or public liability claims (e.g. between strata management and builders)?
- Is there any history of disputes (e.g. between owners and strata management)?
- Are there any outstanding invoices or building works that could result in a special levy?
- What is the future of the building, is it clear?
- Is the complex and the land its built on structurally sound?
Pro tip: Don’t be tricked by slick promotional presentations – these can be orchestrated to avoid showing prospective buyers any less desirable aspects of the property. Be suspicious of a committee that is reluctant to submit all its records for inspection.
Ask yourself before you buy
- Can you afford the quarterly levies?
- Will your budget allow for any planned special levies?
- Are you comfortable with the proportion of owner-occupiers to short-term residents?
- What will you do if the owners corporation doesn’t allow pets?
- Do you think any unit renovations or alterations you’re planning unit will be approved?
- Are the bylaws are reasonable or overly restrictive?
Pro tip: Older blocks, even with sometimes expensive maintenance costs, tend to offer strata fees much cheaper than newer blocks. Older unit owners may pay in the realm of $300 – $800 in strata quarterly, whereas newer blocks are typically $1000 – $1500 per quarter, depending on amenities.
Focus on the upside
When owners and strata management work together to improve maintain and enhance the strata complex and their homes, it results in a peaceful community – a nice place to live rather one to avoid. With the strata report to hand you’ll be able to make an informed decision about the building you’re looking to invest in.