Engineers report

Hi all,
I am still trying to buy my first property and I was about to pay my deposit when the Engineers report in the Strata report came through showing there was $6.5 mill in works that were needed. This equals at least an extra $110,000 in special levies that would be paid if they were to go ahead with all these repairs, though i can't see them not doing these repairs if they are required. Also, who knows how long it would take to collect these levies - a year? 5 years? 10 years? Would you still go ahead with buying the unit or do any of you know anything about engineers reports?

Thanks

 

I'd keep well away personally. These are cost estimates only as far as I can tell.

In rectifying issues there may be other issues uncovered. This is where a cost blowout could easily occur.

Look for something with less risk or with risk you can manage/mitigate easily.

You are likely to find better capital growth with a townhouse or house. If that is outside your budget in the area you want to buy, buy elsewhere.

 

Agree with Wombat. If the repairs will cost anywhere near the estimate, you'll probably see a lot of owners putting their properties on the market to exit the strata in the near future. You may end up holding a lemon.

Go for something without that risk.

 

Thanks for the replies. I did run straight away at my solicitors advice as soon as i saw that, but now that i'm still looking and I can't find anything else, i guess i just wanted reassurance i did the right thing.

Thanks again.

 

Is the vendor willing to drop the price by $110k? In this instance my preference would be running spikes & starters blocks.

 

I agree but these are also interesting opportunities to watch. I've seen units within strata buildings with defects, legal fights, and legal fights over defects increase in value when the issues come under control.

It's true that the situation will scare off most buyers, and the value should drop by the present value of estimated expenditure, but the market can over-penalise. These units might go very cheap, and when they 'turn a corner' the value increase. With buildings in legal fights, achieving a resolution unlikely to be appealed can be that moment when the seemingly bottomless-pit of expenditure has bottomed out.

With defects, adopting a well developed plan to address them - possibly involving a combination of higher levies and the use of finance (to smooth out the cost over a longer period) - to address works in a schedule can be that moment. It's like a smaller version of buying a badly run company and turning it around (but in Australia recently we've seen more of the opposite).

Keep your eye on the building. If units get cheap enough, maybe you can make some money when it turns the corner. But it also depends on the other owners and the committee - which is hard to get a feel for as an outsider. If the lunatics are running the asylum they are their own worst enemies and can defer or prevent that good outcome from being achieved.

 

@Russ - the market penalises for uncertainty. Once quantified you adjust your expectations (up or down).

 

@Miss Schultz , maybe offer $150k less to have a buffer for your risk.

 

6.5 million? Wouldn't it be cheaper to demolish the building and build anew?

 

just curious as to what the issues were in the report?

 

I can only speak of client experiences.
These units become unsaleable and problematic for tenants too. Word spreads fast in the real estate game and you wont be able to give away what you buy until its fixed. It could be ten years as its a lot of cash to raise and many wont be able to afford it. In some cases the one problem leads to others eg fascade, balconys, concrete cancer, carparks, pools etc....One client bought a dud and found out her estimate of $80K for cancer remedies blew out to $180K in two years. Lucky it was a small strata of wealthy people who all wanted it fixed. Then it was all done and she had a QS report and out of the $180K last year her extra deductions where just $5500...Strata special levies are not tax deductible. But a QS report needs to be revised when the work has completed. Div 40/43 is often all you get.

IMO I wouldnt touch a tainted strata with a barge pole. Sure you can snap up a bargain but you need loads of patience. The repairs may take a LONG time before they happen. Financing them isnt matched with any tax benefits.