First investment: Strata issues

Hi guys,

Just sharing information that I went to invest in my first investment property - a small 2 bedder in NSW for $385k with $350pw rental and it all looked great at the surface. Until I found that the strata report came back with plantation/waterproofing issues. Issues were open for 2 yrs. Solutions quoted at $140k+ and all proposals have been knocked back. No resolution yet. Small block of 16 units with low cash reserves and a history of special levies and can expect more special levies to fix this issue that's affecting all units on top of the building. I spoke with the strata inspector who didn't give me any confidence in proceeding. The seller's agent said the report makes the issue sound bigger than it is... In the end I wasn't comfortable and walked off on the last day of the cooling off period. Think I've done the right thing - despite losing 0.25% and other basic expenses. Took courage to make the decision...

The hunt for my first investment property continues...
Any tips? How can I avoid this in the future?

 

Can you make a conditional offer "Subject to purchaser's satisfactory review of strata inspection report"? If the reports don't meet your satisfaction, then that condition hasn't been met, you should be able to walk away and get your deposit back. Probably a good idea to get legal advice on this. I've only ever bought in QLD and WA.

Sounds like a good decision to walk away from that purchase. Losing $1k stings a bit, but it's probably cheaper than continually chipping in for "special levies".

 

That's a good idea in theory, so signing a contract with a conditional offer/waiver so that the 0.25% is refunded if not satisfactory. Although it's completely at the discretion of the buyer. So maybe not something popular with sellers. Not sure if anyone's had any success around that...

 

You have done well, I was not so lucky (it was not present in the B&P and strata title search) and I was hit with a $42k bill 2 years later, builder went bust and litigation was becoming too costly as further issues were surfacing.


First thing I would do is make sure to review all previous AGM minutes and a detailed reivew of all the financials. You need to make sure there is surplus cash in there. Having low strata payments may appear great but if nothing is moving into the admin & sinking funds you are running a fine line if any issues occur.

For me the most basic piece I didn't string together was the low sinking fund payments, they simply were not enough to even cover the 10 year maintenance plan (I believe this is mandatory to have in place) Admin funds were heatlhy but there was only $4k per year surplus moving into the sinking fund bucket... $12k per year sinking for 32 units...... Nowhere near enough.

Older buildings usually have cash in sinking funds and any major issues should have been ironed out or at least budgeted for. There are also different builders warranty insurrance once you go over 4 levels which doe snot work in the buyers favour.

Also agree with Phase2's comment around full strata review - although go over the financials thoroughly, things can occur a year down the track which may not be budgeted for..

 

Very lucky escape. It's always a good idea to talk to Owner occupiers in unit complexes you are buying in. Ask them whats happening to the complex, what they have planned etc. Strata reports are worth their weight in gold as well.

 

It probably won't fly in a hot market, but otherwise, if a seller won't agree to it, you'd have to wonder why??

 

It sucks that you lost 1k and had to walk away from this deal, but you'll save yourself a lot in the future.

There's plenty of properties out there... ask yourself if there's better properties that don't have BC/strata?

Keep learning; don't get too attached.

 

"The seller's agent said the report makes the issue sound bigger than it is... "

Why would agent care? $1000 paid as a lesson. @BCR and others are spot on. litigation is expensive and NCAT is.. how should I say, anybody's game.

 

I would have made another offer, one that makes financial sense, that is if the unit in question was no way physically effected, but they will prob snag someone if it is a hot market.

There always seems to be something & you do not want an OC that is spending like drunken sailors.

 

Well done - it takes guts to say no.

I wish I said no on my first property acquisition....