Purchase or Pass? Company title unit opposite the beach in Sydney with John Edwards

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This week on Purchase or Pass we analyse a potential property and talk about the pros and cons before making judgement on whether it will make a good investment.

This week we have a two-bedroom and one-bathroom unit in a small block of nine, directly opposite the beach, about 11kms from the Sydney CBD. All you have to do is cross the street. The unit has a lock-up garage and there’s an opportunity to park a second car on the driveway in front although this is not officially on the title. The unit is on the first storey of a three storey walk up and gets $650 a week in rent. The major grey area from an investment perspective is that it’s a company title, although there have been discussions to changed it to strata title.

Chris Gray: John, I guess the first thing to try and identify is what is company title? Most people just think of strata title but there’s still quite a few company titled properties out there, aren’t there?

John Edwards: If you have an interest in a unit that is strata titled you have got an interest in your own unit and you can do pretty much whatever you like to it within the rules of the body corporate that governs the block of units that your unit is in. However if you have a company title you own a share in a company which owns the building or the block of units. The consequence of that is that you don’t have any great say in what you can with your unit at all. In fact you are at the behest of the directors of the board that governs that particular company title so that might mean for example they don’t like the tenant that you’re about to put in your unit or they might say they don’t like tenants at all. So there are some negative issues. However, if you can buy a company titled block of units, and buy the whole lot and then convert it to strata title you’re going to make some serious money.

Chris Gray: That’s the thing. It could easily change it by 10% or maybe even 20% if you’re lucky.

John Edwards: It’s probably more likely that you’d get 10% to 20% rather than 0% to 10%.

Chris Gray: I guess one of the main issues is with the company title properties, because generally it was an old way of doing things, it’s typically the really old owners that are actually 60 or 70 that are actually on the board of directors so for new youngsters coming in they quite often don’t like the youngsters, they don’t like the renters. So they’re the kind of people that might be blockading you and there’s nothing you can do.

John Edwards: But strategically what you might like to do is to find a company title which is predominantly owned by these older people and live in it as long as you can. You probably don’t have a life expectancy less than theirs.

Chris Gray: Wait for them to die?

John Edwards: You could progressively pick them all up and you will make a lot of money in the process of renovation and rejuvenation and the conversion to strata title. And these old blocks are usually very good for conversion.

Chris Gray: Specifically this block they’ve actually been talking, because you can do a strata check or a company title check, and there’s actually discussions about converting it. Obviously there’s no guarantee but as long as you can afford to hold on then you can get the bank finance which may only be 70% rather than 80% or 90%, so if you’ve got the cash you can hold on then maybe it’s a great opportunity.

John Edwards: You are making a good point there. The bank financing of these blocks is more difficult than what it is if it wasn’t company title. So there are some things.

Chris Gray: Obviously it’s right opposite the beach, there’s some fantastic views that we’ve seen. How would you analyse getting something 55 square metres, which is pretty small but right opposite the ocean, versus going something a block back but maybe having 70 square metres.

John Edwards: Well the view is worth more than going a block back, let me put it that way. The smaller floor area I don’t think is particularly relevant in all of this because at the end of the day the people who are going rent this out and pay you decent rent are more interested in the beach. They’re not interested in staying at home and reading a book.

Chris Gray: Exactly. So purchase or pass for you?

John Edwards: I purchase.

Chris Gray: Now this unit isn’t for everyone. It’s company title can be restrictive, however if you’ve got a long term focus and have the ability to put down more money as a deposit then I think this could be a cracking property with never to be built out views. I love unique properties such as this and if they convert to strata title it will be even greater so I’m definitely going for a purchase as well.