One of the worst mistakes an investor can make, is purchasing a property with hidden structural problems. In fact, having to fork out cash for unexpected repairs that don’t add any perceived value to a property is one of the most frightening nightmares an investor can walk into because it has the potential to stop you from ever reaching your wealth creation goals with property. To avoid this, property due diligence is your best hope.
Before purchasing a property, I always advise my clients to get a professional building and pest inspection report completed by a licensed provider to uncover a property’s hidden problems.
However, if you’re purchasing a property under strata title — usually, units, apartments, townhouses and semidetached properties — you will want to check the Strata Minutes or Body Corporate report.
Basically, this document provides a detailed record of all meetings, issues and resolutions passed or considered by the owners’ corporation over the past 10 years at least. It will also have crucial information about any upcoming expenses and impending repairs.
As an investor, the most important things to look for in the Strata Minutes are:
1. The financial health of the owners’ corporation.
2. Any disputes — legal or otherwise — associated with the building and its owners.
3. If there’s adequate insurance to cover the property including common areas against floods, fire and storm damage. Your lender may request this information before approving your loan.
If you’re considering renovating a property under strata title, make sure you check the report for past project refusals. Is there evidence that the type of works you’re planning have been rejected by body corporate before?
There are two ways to obtain the Strata Minutes or Body Corporate report.
You can have a solicitor organise it for you or you can arrange a time with the body corporate manager to view the report. The fee to purchase this report is about $30.
Sometimes, the vendor might be able to organise for you to visit their solicitor to access the report.
Now, the body corporate report should provide information on all management, maintenance and owner issues for the 10 years prior as well as anticipated expenses for the future.
If the sinking fund has enough in it to cover these anticipated expenses, new owners won’t need to fork out any additional cash. If not, however, they may have to pay a special levy. Look out for this because it may be a nominal fee or something quite substantial.
There was an apartment block in Sydney hiding a $2.1 million concrete cancer nightmare. The body corporate report revealed that the building’s 21 owners were facing $100,000 each in special levies to replace the roof as a result. Buyer beware!
If there is anything in the report that raises your suspicion about potential building and pest issues, you may wish to hire a licensed inspector to check these out. This report will cost about $500.
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