Purchase or Pass? Strata issues in Fairlight

In this week’s Purchase or Pass, Chris Gray is joined by Arthur Charlaftis from realestate.com.au to check out a potential property that has some issues with the strata that could either add or detract from the property's investment potential.

It’s a two-bedroom unit in a small block of nine, 13.2kms from the Sydney city and literally a couple of hundred metres from the local amenities. It has a large lounge and dining area that opens to a big balcony with water glimpses. It has an oversized study, which could potentially be converted into a third bedroom, which would increase the rent return. There’s been some water penetration to the rear balconies and an issue with a retaining wall. strata levies are increasing by $500 per quarter for the next two years, and there’s a special levy due of $60,000 split over the nine units with some costs yet to be determined.

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Chris Gray: To start with, roughly does it tick all the boxes?

Arthur Charlaftis: It does, I think the location is good. As you indicated it’s a small block of nine, which I think is great. It looks pretty light filled in terms of accommodation, and I think the other thing is the office can be converted to a bedroom.

Chris Gray: That’s always a massive bonus isn’t it?

Arthur Charlaftis: It is, because that will drive both value and rent up.

Chris Gray: So it obviously really comes down to the strata issues, which is why we’re really talking about it. What are your thoughts on whether people kind of jump in and say that’s a great opportunity or what the hell am I up for?

Arthur Charlaftis: I think you get two schools of thoughts here. You’ve got the unknown, and I think not all the costs have been established yet in terms of what they’ll be. So I think it depends on the type of investment it will be, in terms of how confident they are. What are your thoughts in terms of it being an opportunity?

Chris Gray: We’re just about to pick one up hopefully early next week that’s had some major issues and they’ve got maybe $300,000 or $400,000 in the strata. But I think to the average person it is pretty tough, especially that unknown bit. Sure, if you’ve got some costs and they’ve gone out to tender and you know exactly what you’re in for, but again, for first home buyers it can be tough because you’re trying to save for a deposit, the banks aren’t going to lend you money for special money, so that’s extra cash you have to come up with.

Arthur Charlaftis: Right, so for an experienced buyer though do you think knowing and being able to have some cash?

Chris Gray: It can be a great thing because suddenly it puts off the average person, and so if you have reasonably deep pockets and you think, I mean, I always think of strata fees, either you’re looking after a building, so you’re going to look after your investment, because it will cost twice as much if you don’t deal with it. Or you’re doing it to actually improve the building, which is a great thing because you put in $50,000 or $10,000 and it goes up by $20,000 or $70,000.

Arthur Charlarftis: So I guess the other positive thing is actually doing something about some of the damages there.

Chris Gray: Yeah, because there’s nothing worse than all these stratas because the downside about strata, trying to get two of your mates to agree on something is hard enough, let alone if you have 10 people in the strata or 100 people in the strata. So that’s the big thing, at least they’re doing something. So purchase or pass for you?

Arthur Charlarftis: I would pass because of the unknowns.

Chris Gray: I’m not generally that put off by strata issues because I like the fact that they are dealing with the problems but for the average buyer who may not have the experience with those things, and may not have the spare cash, it could be a nightmare from hell waiting to happen. So in this particular case, I’m going to pass on this one.