Strata fees can vary enormously when you buy into an apartment building or townhouse complex and so it's important to understand more before you buy. Are high strata fees a bad thing and cheap ones good – as always, often the contrarian view can be a better financial decision.
Strata fees cover the costs of maintaining and managing the common areas of your property, such as:
• Administration • Management • Gardens
• Pools
• Elevators
• Building maintenance • Shared spaces
• And more
They are essential to ensure that the property remains in good condition and retains its value (or in some cases, increases its value).
WHAT DO STRATA FEES INCLUDE?
- Cleaning and Gardening:
Regular upkeep of common areas to maintain cleanliness and aesthetics.
- Repairs and Maintenance:
Routine and emergency repairs to common property elements.
- Insurance:
Covers the building, common property, and sometimes, public liability.
• Utilities:
Water, electricity and gas for common areas
• Management Fees:
Costs associated with the strata manager who oversees the property's maintenance and administration
HOW ARE STRATA FEES DETERMINED?
Strata fees are set based on the annual budget agreed upon by the owners' corporation. This budget reflects the anticipated costs (including professional assessments) for maintaining and managing the property over the year. Fees can vary significantly depending on the size and amenities of the property.
ARE YOUR FEES TOO HIGH?
Determining whether your strata fees are too high can be tricky. Higher fees often indicate more comprehensive maintenance and better facilities (or smarter saving for future expenses), which can enhance property value. However, it's essential to ensure that the fees align with the services provided and that there is transparency in how funds are used. Sometimes, you are just better off paying a slightly higher strata fee now so your building can "save for a rainy day", or so that the building is better maintained.
There are many factors that can influence the strata fee:
• Property size and age:
Larger and older properties might require more maintenance. • Facilities: Pools, gyms, and elevators increase maintenance costs.
• Management quality:
Efficient management can optimise costs.
It's important to compare your fees with similar properties in the area to gauge if they are reasonable. Here's a more detailed breakdown: Lower end ($500 - $1,000.qtr): This might apply to newer buildings with fewer amenities or buildings where the management has optimised costs effectively. Mid-range ($1,000 - $2,000/qtr): This is a common range for many well-managed buildings with a standard range of amenities. This is usually around the range that we purchase for clients i.e. blue-chip property in a 40–60-year-old block of 12 units with no lifts, gyms or pools. Higher end ($2,000 - $5,000+/qtr): Applies to buildings with high-end amenities, older buildings requiring significant maintenance, or very premium locations.
THE IMPORTANCE OF GETTING A STRATA REPORT
If you are ever buying an investment property, it's crucial to obtain a strata report before you make an offer (along with all your other essential reports and an independent valuation). The strata report provides detailed information about the financial health of the strata scheme, any upcoming maintenance or repairs, and past issues that have been addressed. A thorough strata report can reveal potential red flags and help you avoid costly surprises down the road.
WHERE IT GETS TRICKY
Just imagine you have 2 identical blocks that need to raise $10,000 per unit. Block A decides to double the normal strata fees of $1,000/qtr to $2,000/qtr and raise the funds over 2.5 years. Block B decides to raise a special levy of $10k in 3 months' time.
Both blocks have an equal investment opportunity, but they have just chosen to raise the funds in a different way. Some buyers may have an extra $10k in their pocket and can fund it straight away, whereas another buyer that has more disposable income may prefer to fund it over a couple of years. A third buyer may not be able to afford either payment method and needs to avoid buying completely. Neither way is right or wrong.
You could read into the $10k levy as it being a nightmare block that constantly needs to raise funds to repair a very worn-out building. Another interpretation is that they're spending $10k each on the building to improve it and therefore may increase the value by more. Or you could realise that they're sorting out a $10k problem now that could be a $20k - $30k problem if left unfixed.
INTERPRETATION
In essence, you need time and experience with multiple buildings to really know what's happening with a building and whether the past, current and future predictions of strata fees represent a good investment opportunity or a nightmare about to happen. Sometimes you can't control what's around the corner even if you do get a full strata report and have your solicitor or buyer's agent go through it in detail. So, with every property you buy, you always need to have some funds up your sleeve for a rainy day.
SOURCE: YOUR EMPIRE, BY CHRIS GRAY