Top Tips for First Time Investors Buying a Strata Property During 2020
DEPPRO finds that the majority of property investors tend to buy strata properties because they are low maintenance.
The start of 2020 has witnessed a strong interest in strata properties by property investors following an upward pressure on rents that has lifted the rental yields of these higher density homes.
Over 70 per of the tax depreciation reports we at DEPPRO have undertaken throughout Australia during the first two months of 2020 have been for investors buying strata properties.
However, if you are a first-time investor, you should consider the fact that buying a strata property is very different from investing in a stand-alone traditional house. First-time investors should consider the following eight points when buying a strata company.
- Shared Ownership: Buying a strata-titled property means that the ownership of the common property in a complex is shared and you have to work with other owners to maintain the value of the property, unlike the common suburban home.
- The Strata Plan. The strata plan will help you to determine what you actually own. It will show you all units, common property, boundaries of the property and also if your unit has been allocated a car bay. The ownership of car bays can be critical in determining the value of the unit.
- Council of Owners. The Council of Owners can play an important role in helping to increase the value of your unit. The Council of Owners make key decisions regarding the upkeep of the complex and ensure that all buildings and surrounding property are insured and maintained in good condition. A good tip is to obtain minutes from meetings of the Council of Owners for the past year to determine its effectiveness and if they have plans to upgrade the complex. If you purchase an apartment in the complex, you could consider being elected to the Council of Owners.
- Strata Fees. As an owner of a strata-titled unit, you will have to pay strata fees for the overall maintenance of the complex and to pay for associated costs such as insurances. You should check the cost of these strata fees and if any special levies are planned, e.g., to install a swimming pool for the complex or to upgrade the lifts. Complexes with special facilities such as lifts or swimming pools tend to have higher strata fees.
- Financial Reserves: You should enquire from the real estate agent selling the property how much money the strata complex has in reserve to pay for the maintenance of the complex and any planned improvements to upgrade it. If the strata complex has large arrears, then this means that they may have insufficient funds to maintain the complex and pay important commitments such as insurance.
- Age of complex. The older the complex, the more maintenance and updating it may require i.e. new security gates for car parking. If you are buying older strata titled unit, you may need to factor in higher holding costs over the longer term.
- Renovations: You may consider buying an older unit for the purposes of renovation. However, it is important to remember that you may need the approval of the strata company for externally visible improvements, such as adding a pergola to the balcony. For example, some strata companies have passed resolutions at Annual General Meetings which ban the use of skylights. The resolutions passed at AGMs are binding on all owners.
- Tax depreciation: The tax depreciation benefits associated with buying a strata property tend to be higher than a traditional stand-alone property. They can amount to up to 60% of the value of the property so it is important to claim all of your tax depreciation benefits when buying this of property class.
Paul Bennion, Managing Director