For decades, purchasing a house in the suburbs (whether as a first home or investment) has been part of the Australian dream. However, in more recent years, Australians have chosen to buy and live in units and townhouses, or ‘strata title’ properties, as factors such as proximity to the city, affordability and less required maintenance have increased in demand. Nationally, 9% of the population live in strata properties (15% of households), while 10% of NT residents live in strata properties (19% of households).
As popularity for these properties continue to rise, we thought we’d break down what it means to buy into a ‘strata title’ property. Keep reading to find out the 9 things you need to know before purchasing a strata property.
What is a strata property or title?
When buying a property, there are two main forms of property:
- ‘Torrens’ title, and
- ‘Strata’ title
A Torrens title property is the state’s land registration and transfer system; it’s the evidence of title of the owner. A strata title property, on the other hand, is a method of facilitating individual ownership for part of a property (typically an apartment, unit or townhouse).
What’s unique about strata titles, is that it allows for individuals to own an actual lot or unit, while sharing ownership of the common grounds upon which the dwelling is built. As such, investing in a strata title property can be a smart move, as it’s often an affordable way to enter the market and can be helpful in managing costs associated with repairs and renovations.
What is a Body Corporate?
When you purchase into a strata title property, you also buy into a body corporate. This is an ‘owners corporation’. Those in the body corporate own portions of the building and must contribute to the strata fees.
What is a Strata Manager?
Every strata-run property has an assigned Strata Manager, who is responsible for the property from an Admin, Financial and Social aspect. The role of the Strata Manager usually involves ensuring legal and insurance compliance, maintenance and ensuring that all administration is kept accurate and up-to-date. They are also responsible for assisting residents within the building with any disputes or concerns that they may have.
What do strata fees cover?
Essentially, a property’s strata fees cover everything that ensures your property and the building remain in good condition for use by owners/tenants.
Usually, you’ll find that insurance, management fees and gardening make up a large percentage of the budget for standalone units and townhouses. However, it is good to note that fees can vary significantly depending on the size and type of building. Important levies that you’ll want to keep an eye out for are:
- Administrative Fund: this covers daily and regular expenses, such as maintenance, gardening, shared utility bills and body corporate insurance.
- Sinking Fund: this is for larger expenses, including replacement of gutters or roofing, external painting of the complex
- Special Levies: this is designed to cover unexpected expenses, such as damage or termite infestation.
What do I need to look for when buying a strata property?
If you’re looking to purchase a smaller property like a unit, townhouse or villa as an investment, it’s likely that it will be a strata property. While every property has it’s pros and cons, we’ve put together a list of important things you’ll need to consider when it comes to purchasing a strata property.
Owners vs Investors
Typically, you’ll find that it’s better for a property to have owner occupiers than to have investors, because they’re usually more proactive in keeping the building in good condition. That’s not to say that investors don’t care, more so with the fact that investors aren’t onsite to physically inspect any problems.
Another key thing to consider is the number of properties within the strata; a smaller complex will provide more added value for future owner occupiers, which means that your resale value may be higher than a large complex. Typically, we find that smaller complexes have less costly admin and sinking funds as they don’t have big ticket items, like onsite caretakers and lifts, to cover the cost of. Plus, a smaller body corporate also means less owners to deal with and fewer people who need to agree before making a decision.
Crunch the numbers
Purchasing a new property (as a home owner or investor) is exciting! However, when purchasing a property, it’s important that you review the financial records of the body corporate. Unfortunately, in the rush and excitement that goes into buying a property, sometimes buyers fail to have a professional look over the books and records of the body corporate.
Failing a review of the financials can leave new property buyers open to taking on major expenses and even lawsuits with neighbours; so it’s always worth ensuring that you do have financial statements reviewed by a professional.
Building and repair history
Similar to reviewing the financial books, it’s also equally important that you complete a thorough inspection of the history of the building, including a building and pest inspection and repairs history. You want to check for things such as ongoing problems and cost involved to fix, as well as required updates that may be common to the building given its age. A good place for finding more historical information would be by looking through past committee meeting minutes. You can also obtain information relating to the financial records as well as the building and repair history from the strata manager.
Unfortunately, it’s not uncommon that some older strata properties don’t adequately plan for future maintenance. This could mean that you’re inheriting a property that hasn’t been properly maintained, which could lead to out of pocket expenses.
Ensure that you do your due diligence and check that the sink fund is in a good condition to accommodate any long-term maintenance.
Additionally, you also want to check that there is no proposal to raise a special levy that will be payable by the owner of the property; or any circumstances that are likely to give rise to the raising of a special levy.
The bottom line…
There are many reasons why purchasing a strata property can be a great investment. However, it’s important that you do your research and make sure that you know the state of affairs before you purchase.
Are you looking for a Property Manager to take care of your Darwin-based investment property? Get in touch today – we’d love to help!