How to avoid buying a dud apartment


Sign of trouble ~ Sub-letting and unprofessional advertising practices by owners and tenants at Regis Tower in Pitt street, Sydney

When buying an apartment, the same principles and good common sense apply and these include the usual location analysis, good public transport and amenities, attractive floor-plans and unique points of differences, modern conveniences such as reverse cycle air-conditioning, gas cooking and lock-up storage.

However, you would be wise to understand and investigate some issues which are beyond the mere asking price and physical appearance of the property:

1. Understand the ratio of tenants vs owner-occupiers of the apartment block.

Some apartment blocks have an extremely high percentage of tenants, that is, mostly investors as opposed to owner-occupiers. In such cases, there is usually less control in terms of occupants abiding by-laws and regulations. Owners have less control over the quality of occupants / tenants and the performance of the strata manager. Tenants are also less likely to care for and maintain the premises the same way that owners do. When this happens, the building will “degenerate’ quickly as it will develop a bad reputation and stigma. Investors will avoid the building and in the long run, the apartments within the building will all suffer from poor capital growth. At best, it will have fairly consistent rental yield if it is located close to the CBD but it will attract low quality tenants.

2. Check the previous minutes of strata meetings

Minutes of strata meetings will usually reveal the history of how well an apartment block is managed. It will show the actions and tasks which were undertaken to resolve problems, adverse events such as looming capital repair bills, insurance claims outstanding, squabbles between owners and messy legal proceedings.

3. Strata levies and sinking fund

The age of the building, facilities such as lifts, swimming pool, gymnasium, concierge, security and compound  maintenance are the big ticket items which determines strata levies to a large extent. Comparisons of strata levies can be made with similar apartment blocks to determine the efficiency and effectiveness the performance of the strata manager and how active the Owners’ Corporation are in the affairs of the maintaining the property in a good state of repair.

Sinking funds are monies set aside to fund future repairs and maintenance of the building which are of a capital nature such as any structural additions, repairs and new facilities. There are laws and regulations governing the administration of sinking funds to ensure fund adequacy through regular and progressive payments so that owners are not caught with significant future shortfalls. Ascertain the level of sinking fund to ensure it is adequate and you will not be liable for large increases in the future should the fund be inadequate.

4. Local agent feedback

Local agents in the suburb will usually have the lion share of managing apartments in the suburb and usually have information which will help in your research. Visit and talk to these agents to find out how many apartments they are managing within the block, tenant profile, turnover, history of rental rates and reviews, historical apartment prices trends and other general information on the suburb.

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