Investing in a property that is part of a body corporate or ‘strata’ structure can be a canny move and is the reason we've seen an explosion in apartment living in the last couple of decades.
Not only is an apartment, or a townhouse for that matter, a more affordable way to invest in the property market, it also has fewer maintenance issues than a house. Moreover, an apartment can offer your tenants the convenience of living closer to city centres and the expectation of more employment opportunities. The lifestyle advantages usually associated with living closer to the heart of a significant population centre will also appeal to owner-occupiers and tenants alike.
Owning an investment within a body corporate structure, therefore, has many benefits. However, it's essential to do your research before signing on the dotted line. This homework includes understanding the ongoing costs and issues involved in strata ownership, such as the quarterly payment of 'body corporate fees'.
Ongoing expenses of strata ownership
Also called 'strata fees', all owners pay these expenses to fund the ongoing maintenance of the building as well as some repairs. That said, levies also represent a major benefit of owning a property in a strata building. A strata levy pays someone else (usually a strata manager) to take care of the apartment block's upkeep on your behalf as well as the other members of the 'owner's corporation'.
Body corporate fees vary from building to building and are often higher if there are facilities such as gymnasiums, lifts, and swimming pools. Also, levies can fluctuate between owners in the same building, depending on each apartment's size.
Special levies and sinking funds
Sometimes the body corporate will need to request a special one-off levy from individual owners to carry out an unexpected or especially large and costly repair jobs such as the replacement of all external windows in the building or the entire roof.
You obviously can't predict when this type of levy is required, but you can find out if your potential strata scheme has a special levy owing before you buy into the building. At the same time, be sure to check out the extent of the body corporate's ‘sinking fund’.
A sinking fund is a deposit of money, which allows the body corporate to pay for significant building repairs or maintenance expenses. If these expenses such as the roof repair exceed the pool of money in the sinking fund, a special levy will be raised to cover the shortfall after an annual general meeting or a special general meeting of the owners' corporation.
The body corporate rules
As a landlord, when you own a house, you are the king or queen of your domain. However, with a strata scheme, the owners' corporation is controlled and regulated by the strata by-laws, covering noise, pets, parking, safety, security, use of the common property, damage, and the building's appearance.
This is not an exhaustive list, and other issues such as the ability to holiday lease apartments through Airbnb might need to be addressed before buying into a body corporate scheme.
To find out more about how a body corporate works, contact your local Raine & Horne Property Manager for more advice.