Join Australia's most dynamic and respected property investment community

Strata Finance

Discussion in 'Property Finance' started by Vixs, 30th Mar, 2016.

  1. Vixs

    Vixs Member

    Joined:
    18th Sep, 2015
    Posts:
    18
    Location:
    QLD
    Evening all, not sure if this belongs in renos and mgmt or if this section will do fine.

    Just wanted to put the feelers out there to see if any of you have experience with strata finance, what those experiences have been and whether there are any tips or traps to be aware of when considering borrowing as a body corp.

    All lot holders seem to be in agreement that this is the path they are looking to go down instead of a nearly 5 figure special levy for major works.

    What I know:
    Interest rates suck.
    Extra repayments can be made.

    What I don't know:
    Will this have any real impact on the sale of the property if there is still a strata loan hanging over the body corp?

    If any of you have experiences to share I'd love to hear them.
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,576
    Location:
    Adelaide, SA
    Is it in qld? How many units?
    How long had body corp been around?
    Is it doing ok financially? (I.e. receiving all the owners fees on time and not have too high ongoing expenditure)

    In the strata schemes I've been involved in, selling isn't really an issue since the debt is not attached to individuals but the BC which is a separate entity. Savvy buyers will review the BC financials, and it'll show up on the P&L and Balance Sheet, but shouldn't scare any away if numbers are healthy.
     
    Last edited: 31st Mar, 2016
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    I know nothing of strata corps borrowing, but will personal guarantees be needed? And would those individuals be willing to give one?
     
  4. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,576
    Location:
    Adelaide, SA
    No, not needed. Refer Strata Improvement Loans | Calculator | Business Banking | Macquarie as an example product (all of them obviously have slightly different features and policies)
     
    Terry_w likes this.
  5. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

    Joined:
    14th Jun, 2015
    Posts:
    2,096
    Location:
    Sydney & Adelaide
    Strata finance is generally last resort. There are no personal guarantees etc required, they take a general charge over the owners corporation assets.

    The biggest risk is cashflow... many strata schemes have one or more terminally bad payers and the admin fund can deplete, rendering the owners corporation unable to pay the finance repayment.
     
  6. Vixs

    Vixs Member

    Joined:
    18th Sep, 2015
    Posts:
    18
    Location:
    QLD
    Apologies for not getting back to this sooner.

    Yes, QLD. Body corp is 15 years or so old, small block so only 7 lot owners and cash flow looks good. Sinking fund contributions will actually stay the same after the loan repayments.

    No personal guarantees needed.
     
  7. JDM

    JDM Well-Known Member

    Joined:
    19th Jan, 2016
    Posts:
    145
    Location:
    London (ex Brisbane)
    Yes, it will definitely have an impact when selling the property and any savvy lawyer should identify this issue before the levies increase. Once the levies are increased to include provision for repayment of the loan in the admin fund you are going to deter a lot of buyers.

    I don't know the nature of the works but I question why they were not foreseen and the sinking fund set accordingly years ago to avoid this. I do understand things happen and the works may relate to something unpredictable.
     
  8. Russ

    Russ Well-Known Member

    Joined:
    22nd Oct, 2015
    Posts:
    45
    Location:
    Sydney
    It might be different in QLD but in NSW last I dealt with it there was a minimum lot size (for at least one of the lenders, and I've only known 2) - and I think that was 8.

    There are also restrictions about the amount they'll lend, expressed both as $/lot, and in terms of what the repayment schedule would do to the existing levy contributions.

    This is a pitfall for buildings that run low levies, with the expectation of having capex externally financed. Even if the building is big enough and the $/lot is below the threshold the lender might decline/limit your loan on the basis that the repayments would increase the Owners payments by too high a %. It's sort of like a stress-test to the loan, determined with reference to existing levies.