Who gets the sinking fund money if you buy an entire block of strata units?

Discussion in 'Property Management' started by Robert Petty, 15th Dec, 2016.

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  1. Robert Petty

    Robert Petty Well-Known Member

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    Ok so forgive me if these are silly questions but I think what I want to get to might be interesting because even though I've only asked a couple of people no one has had an answer.

    So say for instance there is a block of four units (could be any amount but we will keep it simple) and they are all owned by four different people. But one person comes along and buys up all the units. There would still be a body corporate in place even though one person owns the whole lot so my questions are;

    1. Since one person now owns the whole lot can they get rid of the body corporate? Or do they still have to pay their body corporate fees?

    2. If they can't get rid of the body corporate do they really have to pay into the sinking fund? Like really.. who's gonna complain or police/tell them what to do when they haven't made their contribution, they own all the units, and so all common areas and land are still theirs at the end of the day..?

    3. This is the question I'm most curious about. Lets say there was a natural disaster that flattened the units or the owner just decided to knock them down and build a nice house for them self on the lad. The units no longer exist, so the body corporate has no need to exist, and so the money in the sinking fund is no longer needed for the maintenance/improvements on the units. So who gets the money that was in the sinking fund??? Lets assume the money in the sinking fund was $50,000.

    I do understand that a body corporate is an individual corporation and used to be the enforcer and maintainer of 'common property'. So I assume that once a development of units is done the reversal of the subdivision to make the particular block of land one title again would be a long process? Most of the time it would be houses being turned into units/apartments and not the reverse, has this ever even happened haha?

    Rob
     
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  2. Perthguy

    Perthguy Well-Known Member

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    Probably check the legislation and regulations. In WA, the Strata Titles Act and associated regulations
     
  3. MTR

    MTR Well-Known Member

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    @Be Developer May be able to answer this question he operates/runs strata company business
     
  4. Heinz57

    Heinz57 Well-Known Member

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    I put in an offer on a strata titled block and was told the sinking fund would be paid to me on settlement. Never went any further with this but I would have controlled the body corporate I guess.
     
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  5. Robert Petty

    Robert Petty Well-Known Member

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    @Heinz57 Thanks for your comment. I did assume that that would be the obvious answer but still wanted to confirm. Up until recently I haven't dealt with anything strata titled and now that I am it raised that curiosity. Im not buying the whole lot, yet.. ;) but a lump sum of money kinda makes the idea of doing so quite attractive doesn't it haha
     
  6. Heinz57

    Heinz57 Well-Known Member

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    Not really I think it was only about $5k
     
  7. Robert Petty

    Robert Petty Well-Known Member

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    the block I'm buying in has about $30,000 I think from what Im remembering off the top of my head.

    Current total value of all the units combined is roughly $500,000. The interest component on a mortgage for that at 5% and even thats exaggerating for the the current interest rates is $25,000 pa. The way I see it, thats a block of units for free for the first 14 months haha
    Anyway was just a hypothetical scenario though. But if the other owners would sell to me and now confirming this I'd be taking them all :D
     
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  8. dabbler

    dabbler Well-Known Member

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    If you buy you run......your money......you can remove the strata title most likey if you wanted too.

    Check with relevant govt body, they will each be different.
     
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  9. Heinz57

    Heinz57 Well-Known Member

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    A unit block has huge upkeep costs compared to a house though so you may need the cash, e.g. 4 hot water systems, 8 air conditioners
     
  10. Perthguy

    Perthguy Well-Known Member

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  11. Robert Petty

    Robert Petty Well-Known Member

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    QLD so very expensive insurance premiums though :mad:
     
  12. Robert Petty

    Robert Petty Well-Known Member

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    Hmm yeah I know that so even if they would sell to me I'd be running my numbers again thoroughly but they rent for around $180pw so thats $37,440pa assuming theres no vacancy periods so really they almost cover their own costs completely and I'm 30K ahead.. I am bouncing very loose figures here at the moment, accept for the rents they are correct, but on the surface it looks like a good idea to me.
     
  13. Perthguy

    Perthguy Well-Known Member

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    I will have to check the legislation and regulations tomorrow. I know nothing about QLD

    Numbers look good but use the sinking fund to maintain the buildings, not to pay your interest! I am pretty sure that won't be legal.
     
  14. Robert Petty

    Robert Petty Well-Known Member

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    Well like @Heinz57 said, the money would get paid out to him on settlement. So I'm assuming that means to his own personal bank account. So there really shouldn't be any laws against him spending his money how he likes. Of course he would have to maintain the building but if he owns the whole entire complex it's not like there's gonna be the owner of an adjoining unit complaining about the carpet stain in the hallway. Obviously he would want to maintain his building but it's up to him how, when and what money he does it with if the sinking fund money was paid out to his personal account. See why I had the question. Because if it really does get paid out to you then it's pretty great isn't it. But if it still has to sit in some kind of trust fund then it's not really appealing.
     
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  15. Miss_D

    Miss_D Well-Known Member

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    If this is in QLD make sure you have the correct Fire plans/procedures/equipment. Huge fines if you don't, as the laws have changed in the past 3-5 years due to childers back packer fire and the loganholme fire that killed a lot of people. Body corp needs to make sure this is up to date, yearly fire evacs need to be done and documented. Along with that the insurance will be the two biggest things you need to pay for. I would be finding out costs on both of these as both as a body corp and with out body corporate, as the figures may be quite different.

    You can also self manage a body corporate. You do not need to have a managing company. My unit we self managed for a little bit, its fine if everyone pays, or one owner.

    As a majority holder you can also incorporate and vote in your own bylaws. e.g.. no noise after 10pm, no air cons on balconies, no pets.. etc etc. You can also vote out existing bylaws, and vote on the cost of sinking fund/admin levy etc.
     
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  16. 380

    380 Well-Known Member

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    @Robert Petty

    You aksed some important question!


    1. Buyer should negotiate purchase of existing body corporate as part of sale.

    2. Buyer can get rid of body corporate by giving appropriate notice.

    If it is Vic- no need of REA licence - just simple owners Corp registration and insurance

    3. Sinking fund money can be distributed back to each unit owner (even though same owners)

    4. Have common utilities converted to new owners Corp and take out new insurance

    5. It is not easy to convert starta title in to one title. Can be done - just bit more headache
     
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  17. kierank

    kierank Well-Known Member

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    1. I believe you can get rid of body corporate but that means that you can only then sell the whole block and can't sell individual units.

    2. I understand that if there is a body corporate, there must be a sinking fund. That is the law and I believe you can be audited. If you own all the units, there is no stopping you setting a low sinking fund fee (say $100pa per unit). If any major expenses arises, you/the body corporate can raise a Special Levy to cover it. Low sinking fund balances might cause issues if/when you later want to sell one unit. The admin fund fees should be sufficient to cover the admin expenses each year.

    3. I don't know the answers to this one but I would imagine that any monies in the admin fund and sinking fund to go back to the owner if the body corporate was disbanded.

    I own a block of units in QLD and it had s body corporate in place when we bought it. We keep the body corporate just in case we wanted/had to sell one unit. We don't pay much into the sinking fund. We have a body corporate manager (to ensure everything is above board) but we have negotiated their fees. We typically only have one meeting a year and we spend more time in travel than actually having the meeting.
     
  18. Big Will

    Big Will Well-Known Member

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    This was my biggest thought, having them as separate units gives you flexibility. Say in the future you run into financial hardship you can sell 1 or 2 units to release the pressure otherwise you have to sell the whole complex.

    As @kierank also mention you just setup a very low amount of 'sinking funds' to combat the cost.
     
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  19. Robert Petty

    Robert Petty Well-Known Member

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    Hey everyone and thanks for your inputs. Mainly it was just a thought thats been lingering in the back of my mind for a while. But I also see a new approach to an investment strategy now that you have all confirmed this so thanks again.

    @Miss_D thanks for making sure I was aware of this. Fire safety is obviously a very important thing to keep up to date.

    @Be Developer thank you for your expertise, although just so you and @Big Will know, I wouldn't knock the units down, only wanted to give a firm example of the units not existing and the sinking fund not being needed anymore. And @kierank (I don't think its letting me tag you, sorry) but I also thought of that to cut costs. Or keep money in my pocket anyway.

    Ultimately I just wanted to know if I bought all the units in a lot what would happen to the sinking fund money and I've got the answer now so thanks all for your knowledgeable contributions.
     
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  20. VB King

    VB King Well-Known Member

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    Whatever goes into a sinking fund eventually gets spent on major repairs and maintainence. Whether a block of units is strata titled or not, it will still need over time major repairs and maintainence.

    If it wasn't strata titles would you sensibly put a little bit of cash away each month to build a buffer to afford the inevitable repairs and maintainence? If so, it's your own private sinking fund.

    I wouldn't look at the "cost" (savings plan) of a sinking fund as something to save on. Budget for it whether there is a sinking fund you have to contribute to or a cash buffer you should contribute to.