Are your strata fees a cost or an investment?
When you own a single apartment (or more) in a complex, it’s tempting to take a hands-off approach to your investment and leave everything in the hands of a few owners.
What you may benefit from remembering is your apartment is part of a larger building structure which you co-own. This structure, its plant and equipment are assets of your strata company which are financed by the strata levies you pay. The way those funds are spent is determined by the strata committee and whether your assets increase in value or decrease in value will depend on the expertise of who is in charge. Do you know who is running your strata company?
With that in mind, let us tell you the tale of two strata companies:
They are two residential high-rise buildings in the same street. One has 84 apartments, the other has 93 apartments. Both have a swimming pool, gymnasium and spa, along with a Strata Manager and a Building Manager. Let’s call them Strata Company 1 and Strata Company 2.
| Strata Company 1 | Strata Company 2 |
| No levy increases in the past five years. | Three levy increases in the past four years |
| $215,000 in their reserve fund | $45,000 in their reserve fund |
| A forward maintenance plan | No forward maintenance plan |
|
Timely decisions about rolling out maintenance projects to coincide with levy incomes |
Reactive decision made as urgent maintenance needs arise |
| Yearly administration budget of $295,000 | Yearly administration budget of $420,000 |
Owners in Strata Company 1 would enjoy:
- Predictable quarterly cash outgoings as levies remain static
- Less risk of unexpected maintenance costs due to the 10 year forward maintenance plan
- Longer asset life as regular and cyclic maintenance is in place
- A high quality of life within the complex for residents as common property is maintained and upgraded as planned. This can equate to a lower turnover of tenants
- Less risk of unplanned, one off expensive repairs as plant and equipment is being maintained
- Potential tenants are more likely to choose Strata Company 1 if rents are similar.
- Strata Company 1 is likely to have a positive impact on the owners return on investment.
