Is it worth buying a property with a strata levy?

Spanish villas round a swimming poolHave you ever looked at a unit as a property purchase only to be turned off by the strata levies (otherwise known as Body Corp fees)?  Do you know how to assess if the strata levies are too high (or too low which can create other problems)?  There are guides available to assist you in making a decision as to whether buying the unit and paying the levy makes for a good property investment.

It seems that Australians, especially those living in cities, are turning to unit property purchases rather than the once great Australian dream – the house.  Not only are we wanting to live closer to the centre of a city (and reduce travelling time and costs to get to work) but we are also losing interest in maintaining a garden (mowing on a Saturday morning has lost it’s appeal).

The one turnoff with unit purchases for many is the strata levy.  Many people would like to pay $0 (or the bare minimum) but is this viable option?  Paying a strata title covers:

  • Building maintenance – both inside and out
  • Building insurance
  • Maintenance of gardens and other common areas
  • Maintenance of swimming pool, tennis court and gym (if applicable)
  • Onsite caretaker (if applicable)
  • Communal Electricity
  • Sinking fund costs

Without the maintenance of the above, a property would soon become rundown and lose its value which means you lose money.  Not a prospect anyone wants to face when investing in property. A great example of this is a unit I went to look at recently.  The unit itself was in a great location and had a great floor plan.  However, the common areas inside and outside were filthy and poorly maintained and the garden was dead and filled with rubbish and weeds.  This property immediately lost it’s appeal.

When you’re looking at a unit, find out what the strata levy is annually and then weigh up the costs.  If you are someone who currently pays for a gym membership, regularly pays for pool visits, pays building insurance, begrudgingly does their gardening and pays to travel from afar, you may find the strata levy actually represents good value.

In a recent article in Domain, Jimmy Tomson from http://www.flat-chat.com.au/ provided the following guide to assess how fair the strata levy fees were.  Following is Jim’s rule of thumb:

  •  Large, well maintained properties with pool, gym etc – 0.7% to 1.2% of the purchase price
  •  Townhouses and properties with basic services – 0.4%-0.7% of the purchase price.

If the amount being quoted by the agent is higher than this you should question why.  However, if you are paying a lot less don’t get too excited and grab the unit straight away.  Ask why and weigh up the future consequences of this – will your property lose value as the building and grounds fall apart?

For residential property purchasers, consider the above figures when you are out looking for a unit and think about what you will save by living in a well maintained property.  For a property investor, consider the higher rent you will receive and the quality tenants you will get if you buy a property that is well maintained and offers additional facilities.

If you would like more information in this area or would like to discuss a property purchase contact us.

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