Strata properties are a popular option, particularly in the bigger cities like Sydney and Melbourne. This video points out a few things to look out for when considering investing in a unit, apartment or townhouse.
VIDEO TRANSCRIPT
Hi. In today’s video, I want to talk about an interesting topic which is the idea of investing in strata properties. So, by strata, it might be called something else in different states, we’re basically talking about, obviously, a bigger property where you are only owning a portion of that property, right? So, typically sort of units, town houses, villa’s, whatever it might be. But the thing to note is there’s strata and there’s strata, right? So I’ve had some of my most successful investments have actually been in strata properties. And I note that at the moment, especially living in Sydney where I do, there’s a lot of negative sentiment about that, I get that, we talk about Mascot Towers, Opal Towers and all those really, really unfortunate things that have happened to the owners who’ve purchased in there. Often in absolutely no fault of their own. But, I think it’s really important that we don’t sort of paint all strata buildings or all strata properties with the same brush. Again, if I’m looking at an area and you know, some areas may be completely unsuitable for strata properties but certainly there are some and we’re looking at some at the moment where we believe that in the long-term, these type of properties may actually outperform stand-alone houses in particular areas. So that’s not a blanket statement, it’s not everywhere, but there certainly are options around. So some of the things I like to look for when I’m looking for strata properties, I like the smaller blocks, right? So I’m not mad about looking for the much bigger things, everybody has a different rule on that but certainly, if I can see a six pack or whatever it may be, a lot of the time that can tick at least one of the boxes. I’m looking for a high land to asset ratio, so there’s various ways of ascertaining what that might be but, generally, if we’re a little bit closer into town in quite attractive areas and we’ve got an oversize unit or whatever it might be, certainly relative to the land it’s on, you can actually get quite high land to asset ratios and it actually surprises a lot of people when you stack those up against stand-alone houses. Again, we also look at yield and importantly when you’re looking at yield on a strata property, you’ve obviously got to take into account the operating cost on that, so when you’re looking at strata, then part of that at least is taken out of your hands and that’s the strata payments. A lot of time it’s not anything you can directly control. You can get onto committees and stuff, but it’s a little bit harder to control that sort of expenditure, compared to owning your own home or whatever, or a stand-alone house I should say, where you can control a lot more things and I think a lot of people get turned off from that, I can see where they’re coming from, but certainly I think if you’re looking at property, it’s important not to be myopic and only say, “I’m going to invest in this type of property”, so certainly, strata properties can present options for savvy investors but there’s a lot of homework to be done and a lot of it in fact, is around understanding what shape that strata is, the strata committee’s in, right? Because in essence, you’re buying into a little business, as it is, so it’s really important to review the minutes, look at all the strata reports and looking at the balance sheet and stuff like that, to understand if you were to buy into this complex, where your money’s going, right? So, the one thing that I also want to point out and I think that a lot of investors skip over this, is when you’re looking at the strata cost, So, let’s just say it’s $700 a quarter, well that might be $400 in admin and $300 in sinking. Now if you can ascertain what that split out is, it’s when you’re looking at that sort of property versus a stand-alone property, it’s important to do a like for like comparison, so if you’ve got $300 in a sinking fund, like in that previous example, well on like for like it will be fair to also look at what the maintenance might be on that stand-alone property that you’re looking at because if you’re just looking at it on that $700 sometimes it can be a little bit misleading, but yeah, that’s just a little tip and that’s just something that I look at if I can, so yeah, hope that helps.
