What is a reasonable sinking fund balance?

This is in Sydney.
14-unit block
Built in 2001
No lift
2-4 storeys
Undercover parking with storm water pump and lockup garages
Double brick construction

No major capital works have been done to it yet (e.g. painting common area, cleaning of external wall)

What should be a typical sinking fund balance for this type of building?

I wonder how this would impact the sale price compared to other similar building in the area.

We are thinking of selling in the next 18 months.

Note: there are an abundance of units of this type and age in our suburb. But due to recent downturn of the apartment market not many owners put their units up for sale. There are also an oversupply of OTP high rise apartments in the neighboring suburb.

 

I wouldn’t worry even if the sinking fund is low if you chip in 1k to it (14k total) it really makes no difference in price.

You can’t put 1k into a sinking fund and get 5k return or vice versa meaning get a 5k reduction for a 1k expense when it is pure cash.

 

A small sinking fund after you have just spent $100k on capital works is an easy sell.

A small sinking fund with $100k of capital works required spells special levy to a purchaser so be prepared to take a hit

 

I'm a strata manager, not a quantity surveyor - however I'd expect there to be at least $100-$120K in the bank if the external walls are painted, if the walls are unpainted (i.e. just brick), then I'd be worried if the balance was under $50K.

Your body corporate should have a sinking fund forecast (spending plan) which will have a recommended balance - a big variation from that balance without a good reason is a red flag to informed buyers. It will be too late to make a decent impact in the next 18 months without a considerable increase in your levies, so I suggest making sure your agent is equipped with knowledge and a good explanation for any such questions.

Matt

 

I agree. Should be at an absolute minimum 50-60k, preferably 100+... As a guideline our strata manager recommends approx 1% of the building value.

 

Why would you always want $50-60k sitting around in an account? I know I'd rather have the money in my pocket.
As Dave said- it depends on what's been spent recently and what's coming up. I bought one with $10 (no zero's missing) and one with $100,000 in the sinking fund. Read the 10 year plan.

 

The body corporate needs to have some money to spend on maintenance which might become urgent. I had a building that needed to install a fire pump (about the size of a mini-bus) and was given 30 days to do so by the fire authorities - they didn't have the money so lost $12K in fines and then had to borrow at 10% interest to fund the cost, and then pay the loan payments with special levies.

Owners generally don't like receiving special levies of ~$20,000 each with 30 days to pay, and if the body corporate needs to bring that money in before it can spend it, that can mean buildings go without crucial repairs.

Obviously it has to be reasonable, but well-run buildings hav decent sinking funds.

Matt

 

This

 

It constantly amazes me that people who buy into strata schemes don't consider the SF at an asset (albeit shared). A low SF is a liability waiting to happen at highlighted by @Matthew Savage.

A hot water system blows on a long weekend, drunk driver runs into the entry gates, fire service order etc needs to be funded immediately.

 

One's I've been involved in typically have $1000-$5000 per unit.

I would be more interested in what the levies have been over the last few years and get a copy of the 10 year sinking fund forcast to see if things are on track.

 

I've just heard of one building in Sydney with 12 units, walk up 3 levels no lifts just simple basic building 35 years old. Currently 60k in the sinking fund with levies around $850 per quarter on average each unit. Just received quotes for building works around $500,000! Anyone buying into a building with 1-2k in the sinking fund will be in for a rude shock at some stage not to mention multiple special levies. Incompetent committee members and poorly run schemes are common and some even have 10 years plans that are far from accurate, the 10 year plan can be notes on the back of an envelope by unit owners that have no experience in building maintenance. There are no regulations on who can prepare the 10 year plan.

 

Yes. Obviously the amount needs to reflect the size of the complex. The one I bought that had $10 I addressed and at the next meeting. The price was too cheap to not buy and the strata fees were way to low (hence the lack of money). Others weren't too happy when I suggested an increase but I can be persuasive. LOL

You definitely need to take the sinking fund into account when purchasing. As mentioned- it's your money.