Newbie feedback on sinking fund/BC fees

Discussion in 'Investment Strategy' started by SAIL01, 13th Jan, 2020.

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  1. SAIL01

    SAIL01 Member

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    Hi all,

    I'm looking at a 2 bed/1bath/1 car townhouse on the market for $340K as an investment property. The fees/rates are as follows:
    • Complex: 30 Townhouses/Constructed in 1984
    • Body Corporate : $911.00 per quarter
    • Sinking Fund as at 31/05/19: $86,771.78
    • Council: $406.90 per quarter
    • Urban Utilities/ Water: $285.00 per quarter
    This is one area of property investing that I'm not quite sure I understand fully - ie: is the sinking fund appropriate? Are the BC fees too high? What sort of numbers should I be looking at, if that's a thing?

    Thanks in advance for feedback!
     
  2. kierank

    kierank Well-Known Member

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    One needs to look at the maintenance schedule to see what work is planned for the next few years.

    For example, if the building externals are to be painted this year and the budget is $200,000 then clearly it is not.
     
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  3. significance

    significance Well-Known Member

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    One option is to get a due diligence report done on this for you -- your conveyancer should be able to recommend someone. They'll go through the body corporate documents and look for any issues, including whether the sinking fund and body corp fees match up with the maintenance schedule and history of repairs, etc. To know whether the sinking fund is appropriate, you need to know not only the amount currently in the fund but also whether anything big has just been done, whether there has been adequate planning for future maintenance, and whether any big-ticket expenses are looming in the near future.

    ETA: Body corp fees vary quite a lot. They'll usually be higher if the property has elevators (a big expense), a swimming pool, gym, and significant landscaped gardens. You can get a good idea of what they should be in your area for this type of property by asking the REAs about the BC fees for other similar properties currently on the market in the area.
     
    Last edited: 13th Jan, 2020
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  4. Lindsay_W

    Lindsay_W Well-Known Member

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    Should be mandatory not optional :)
    Seeing as it's a complex of townhouses I wouldn't expect any big ticket items such as replacement lifts however the due diligence report will show if there's anything else.
    $70 a week isn't too high for body corp fees at that price range.
    What's the expected weekly rental return?
    What suburb is it in?
     
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  5. SAIL01

    SAIL01 Member

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    Brilliant thanks, I'll ask for it - I assume the REA will have it? They've given me a disclosure statement, insurance certificate of currency, AGM minutes for 2018 and 2019 and the 2019 financial statement to 31/05/19 and that's it
     
  6. SAIL01

    SAIL01 Member

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    Expected weekly return is $350 and it's in Gordon Park, QLD.
     
  7. SAIL01

    SAIL01 Member

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    Confirmed that there is no updates or maintenance planned on the property as per 2019 AGM so that's good. But if it happens the year after then that could be concerning. Is there a minimum dollar amount or ratio figure that you personally like to see for a sinking fund?
     
  8. significance

    significance Well-Known Member

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    REA might not have it. You can get it from the property manager, who is likely to charge a small fee. Or if you pay for a due diligence report, they'll do that for you.
     
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  9. Lindsay_W

    Lindsay_W Well-Known Member

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    Price seems a bit high, have you compared 2, 1, 1 apartments in small brick walk up's (2 or 3 stories max) with maybe 5 - 8 apartments total? should rent for similar money but have cheaper body corp fees - just a suggestion.
     
  10. kierank

    kierank Well-Known Member

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    NO, that is not good.

    We had a Maintenance Schedule/Sinking Fund Forecast last done in 2017 and it covers the next 15 years (to 2031).

    The BC should have such a report.
     
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