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Urgent! Should i go ahead?

Discussion in 'The Buying & Selling Process' started by xornr89, 27th Jul, 2015.

  1. xornr89

    xornr89 Member

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    Hello everyone,

    Recently i have put down a deposit for a apartment that i am interested in purchasing.

    I have received a managers strata report and i had a quick look through some of the figures listed.

    What i have identified:

    1. Last years administrative fund levies raised up until May 2015 for 24 lots calculates to $63250 and a special levy $16000 (i'm guessing everyone paid a split share so around $667?) therefore $81240 raised and expenditure was $62958.09 minus the previous balance in the fund $7235.68 - balance now $11,046.68.

    2. Last years sinking fund levies raised $10136.70. Expenditure was crazy as the property had to replace a water tank which costed $14376.53, drive way,paths and letter boxes costed another $3572.42 and walls and ceilings $1782, totalling expenditure to $19732.95 (a deficit of $9596.25). After deducting the previous balance of the sinking fund of $4113.57, the balance now totals a negative -$5482.68.

    3. I don't know what this is but it says cash at bank/reconciled balance/bank balance totalling $6077.63.

    I have offered for this property at Blacktown for $440000 and it is 14 years old, about 95 sq/m and it is a 2 bed 2 bath and 1 car space apartment.

    What should i consider currently in my position? This is my first investment property. Should i get the actual strata report from independent company? Should i also carry out pest and building inspections? Or simply should i run (without my deposit)?

    Thanks guys i would really appreciate some urgent help!
     
  2. Chilliblue

    Chilliblue Well-Known Member

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    What does your solicitor/conveyancer say?
     
  3. sanj

    sanj Well-Known Member

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    Holy moly a 14 yr old 2 bedder in bloody black town for that kind of money, what do u see it being worth in say 3/4 years?

    Re your question, it could go either way. Sometimes the kind of expenditures you've mentioned show the building is being maintained well and in the event of things going wrong the strata company and council of owners are on to it.

    Sometimes it means the building just is crap and has constant issues. Go through everything in detail, all the strata minutes etc. Also maybe try to contact someone on the council of owners for feedback or speak to a tenant in the building.

    I recently helped someone with a perth cbd apartment purchase and the building had some prior issues with lifts etc despite being less tha 5 years old. It took me a fair bit of work to get to bottom of it, speaking to strata company, council of owners, standing out the front and talking to residents etc.

    How big is the complex? Obviously having so little in the bank is far from ideal but is a bigger problem if it's a large complex
     
  4. xornr89

    xornr89 Member

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    Chilliblue:
    I have arranged a formal strata report.. literally minute by minute detailing the condition of the property. My solicitor recommended me to dig a little deeper before i make any final arrangement.

    Sanji:
    I think the price is justifiable in the Blacktown area at the moment. I don't see the market getting any more cheaper, nor are any agents interested in low offers in the area. I went the an auction the other night for a property about 7 years old 2/1/1 sold for $480,000. Do you not see the potential just because the property is old? I would like to know :) I see prices rising close to about $600,000 but not more. There is an estimate 9% p/a growth in the area since last year.

    The complex contains 24 lots. They are increasing the sinking fund levies in 1/11/2015 to make up for the deficit. As i have aforementioned above, I have ordered a strata report from eyeon. I will probably receive it tomorrow. Ill try to pick out if there is any underlying issues to the property listed in the report.

    I have only spoken to one lady who is my neighbour, she moved in 6 months ago, her unit much smaller than mine bought for just over $410k. I asked her about some specifics about issues with the property and she didn't have a clue.
     
  5. sanj

    sanj Well-Known Member

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    Hmm a 14 yr old building with 24 apartments having effectively 6k in the bank and no sinking fund isn't great. Is there a lift in the building? I assume not.

    Re black town, honestly I'm no expert. It does seem to me like you may be buying pretty close to the top of the market, just my opinion. As this is your first purchase the difference between picking a fast growing property vs one that stagnates for a few years is often massive over the long term and so I'm just suggesting you make sure this is the right fit for u.

    I find its always good to go back and try to pick holes in my own strategies
     
    Esh likes this.
  6. Chilliblue

    Chilliblue Well-Known Member

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    Follow your legal advise
     
  7. larrylarry

    larrylarry Well-Known Member

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  8. sanj

    sanj Well-Known Member

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    I was in blacktown around 5 years ago for a meeting, did i miss the "CBD"? Pretty generous way to describe it...
     
  9. CosmicTrevor

    CosmicTrevor Well-Known Member

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    I'm not going to comment on the value of the property or whether it is a good buy, rather just focus on the numbers.

    It looks like the sinking fund levy is normally $63,250/24 = $2,635 assuming an even split. The extra levy on top of this brings the levy for last year to ~$3,400. Whether this is reasonable depends on a couple of things - what the complex has to maintain and secondly whether this is out of proportion to the income it will generate. You should check that out.

    The sinking fund levy is ~$420 pa. Thus ignoring the special sinking fund levy the annual cost of sinking & admin was ~$3,050. This doesn't sound shocking to me, but as I said you need to run the numbers.

    The cash at bank is probably the difference between the admin fund surplus and sinking fund deficit. The sinking fund deficit will need to be recovered next year ($230 each) as well as an increase I think to cover future building issues. I'd say it may need to double but that is only a guess.

    My guess is that the admin fund budget should sit at the ~$80k expenditure from last year. The large variance that was covered via the special levy could be an indicator that the property is being managed well and a better budget has been established. The admin budget once set shouldn't fluctuate wildly unless something has been missed, hence my thinking that it should sit at the $80k with a 5% contingency, so lets call it $85k - this is ~$3,540pa.

    Next year the sinking fund deficit needs to be recovered ($230 pa each) and I would suggest to avoid future shocks should be doubled - thus the cost should be $230 + ($420 * 2) = $1,070 next year and then $840 beyond.

    So run your numbers at ~$4,500 and see if it makes sense still. For example, lets say it rents at $500/week. This would make your strata fees 18% of income assuming 50 weeks. I don't know if this is reasonable, maybe the more seasoned guys and gals here could comment?
     
  10. Esh

    Esh Well-Known Member

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    Honestly, this market is crazy. The best buys are when there are crap photos and when they come up day 1 on the market and already on the bottom page or page 2 or re or domain. Lazy agents are the best way to get a discount price in this market. But on the other hand if you want to buy, I really like the idea of adding value yourself. Maybe if a property needed a reno whether minor or major. For houses, love the possibility for either duplex or granny flat potential. You can go further out west for that much money and be able to do more with it.

    Alot of buyers in this market want something ready made and not to do anything with the property, hence another reason (out of the billion) that they are paying premium price
     
  11. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Chat to your solicitor for their input.
     
  12. RetireRich101

    RetireRich101 Well-Known Member

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    I live 5min walk to the blacktown station....i have been looking for the same thing for the last 30 years.
     
  13. xornr89

    xornr89 Member

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    So got the strata report back. There is about $6000 in the admin and -$5000 sinking. Expenditures including paths, driveways, letterboxes, walls & ceilings, and a NEW hot water system has put this sinking fund at a deficit as expenditures costed $19732. So net asset of this property is currently $900.. I really like this unit as location, layout and position is all great... but really in all honesty the lack of funds available for the future seems to deter me someway.

    They had a special levy imposed last year for a deficit in the admin fund. And there is a possibility of a special levy being hit to make up for a sinking fund deficit. There is a new strata plan insitu for this year increasing the levy for the sinking fund - a new total of $168 p/q out of $802.55 (so the rest going to admin).

    Cost to service the loan will be around $82 (i/o) and/or $208 (p&i) pre tax. Anyone else servicing a loan for pretty much the same on a 10% deposit?

    Also i wonder if it is because we have started a new financial year... maybe these figures would improve somehow. I am down anytime to lose the deposit and move away to a better property if needs be. What do you guys think? All help will be great, thanks guys! :)