Any issues buying a non strata titled block of 10 apartments?

Other than the fact that it would be super expensive to strata title them later, if I am looking purely for rental income, are there any downsides to buying 10 apartments on one title?

 

Probably lots. Anything you’re concerned about specifically?

 

Not really, just wondering if there are some obvious things I should know that I don't, some reason not to buy this kind of property etc. The gross return would be pretty good, ~8%, the building is 80 years old, in good condition, needs some work etc. I know that it would be almost impossible to strata financially, the cost would just be prohibitive, but if all I want is the nice steady rental income, I was wondering if there was some other financial or legal pitfall I was missing.

 

Upsides over owning 10 apartments in different buildings: combined council and water rates; potentially save on strata admin; scale when it comes to property management; can deal easily with issues around pets, parking, noise etc

Downsides: all your eggs are in the one basket on location, and if there's major structural issues or council orders (eg fire upgrade) then all the expense is yours.

 

For starters the finance will be difficult. Lenders will see this as a commercial loan so you'll need a significantly larger deposit than usual. You can also expect higher rates and setup costs with a reduced amount of lenders willing to fund the purchase.

I'd also suggest you do the numbers very, very carefully. These sorts of properties rarely have the cash flow that people anticipate when all the real costs are taken into account. They're usually not the cash-cows people expect.

 

thanks for the helpful info everyone. Funding should not be a huge issue, I'll put 50% down, but

is more the kind of thing I'm worried about......is a council order to update a building to meet fire regs something that happens frequently to old buildings? This one is double brick, but I believe it has wooded joists rather than concrete slab etc. Or something else similar, like an order that the staircases are too narrow etc. Basically large expenses I don't budget for that are hard to anticipate with my current knowledge. Hoping an decent engineering inspection will uncover a lot of them, just wanted to go into my due diligence with some extra info from all the knowledgeable people here, so thanks! I really appreciate everyone taking the time to respond

 

A fire engineer wouldn't go astray - they may be able to pull up some deemed to satisfy (dts) provisions which will save your bacon on some of the big expenses - eg being in close proximity to the street hydrant may avoid having to install a booster on the land, hardwood floors are less combustible and may pass the dts requirements, exit/emergency lights are an easy & cheap remedy. Other provisions will be based on the type of building eg is it 5 storeys with 2 flats/floor or 2 storeys with 5 flats/floor (totally different risk factors) - this will affect fire doors, fire isolated stair cases, smoke lobbies etc.

Locational risk is one thing that you can assess - is there a strong demand in the area/rental history?

Council generally don't go out looking for work ie placing fire orders on buildings unless prompted by government/upper management etc - speak with a planner or strata manager in the area for a feel for what's happening.

 

Completely agree with this - gross 8% actually sounds horribly low for a 10 pack and I'd be concerned the net return is more like 3% or something like that.

 

Another order I've come across in inner Sydney is a balcony balustrade upgrade, existing brick balustrades were under 1m, ended up being removed and replaced with glass at about $18k per small balcony.

 

Blocks like this are attractive to wealthy landlords who are cash buyers. They tend to outbid at auction too. Finance may be harder to access as lenders will want to see capacity to pay for repairs and defects from cashflow.

One major downside is capital works. You will be replacing HWS, appliances etc and others issues and when one goes then expect another 9 to go. And defects as Mel suggests can magnify. May be well worth to develop a project plan for defects and maintenance just as any prudent strata manager should. I have a handful of clients who love these sorts of properties and they are pretty ruthless on deferring spending due to the multiplier effect.

 

We have 2 blocks on single titles and they pose no real increase in maintenance requirements over our strata blocks. If you have an extensive property portfolio you are going have maintenance requirements..Properties are going to require maintenance irrespective of whether they are houses, town house,s strata units etc,

The one downside to owning whole unit blocks, whether on one title or strata'd is that it becomes difficult to negotiate rents because one rent affects all tenants in the block. This was a particularly issue in Covid times as you simply can't drop the rent for one tenant in a block and not expect all the other tenants not to find out. This also happens at times of high vacancies times where offering a unit for less rent than what most tenant in a block are paying, same result, they talk and word gets around. A plus is when you rent a unit at a higher price then their fellow tenants, again, talk precedes a potential rent increase for the others.

 

This is all super helpful, thanks everyone, stuff here I hadn't thought of!