Buying a strata property can be a smart investment or a nightmare, depending on what lies beneath the surface.
While strata living offers shared amenities, lower maintenance, and potential capital growth, it also comes with risks that can result in unexpected costs and legal headaches.
Prior to investing in a strata property, it is important to be able to spot any warning signs and steer clear of frequent traps that many investors fall into.
1. Ignoring the Strata Report
A strata report is one of the most critical documents you can review before purchasing a strata property. Typically, these reports are between 180 to 250 pages long, but when a recent report commissioned by Simone came back at 830 pages, it was a clear indication of serious underlying issues within the complex. If you receive an unusually lengthy or vague report, consider it a warning sign. Major defects, legal disputes, or financial mismanagement may be lurking within the pages.
As highlighted by the NSW Government, “Get a strata search report done before you buy. This will reveal issues about the complex that you should consider before deciding to buy.” A thorough review can reveal:
- The financial health of the owners corporation
- Pending legal matters
- Building defects and planned works
- History of disputes within the strata scheme
2. Underestimating Future Levies and Special Levies
Strata levies cover building maintenance, insurance, and common area expenses. While low levies might seem attractive, they can sometimes indicate poor financial planning. If the owners corporation has not adequately funded the capital works fund, you may face hefty special levies for unexpected repairs or upgrades.
For example, in older buildings, major structural repairs such as replacing lifts, waterproofing, or facade restorations can cost each owner tens of thousands of dollars. Understanding the strata scheme’s 10-year capital works plan is crucial before buying a strata property.
3. Failing to Assess Common Property and By-Laws
When buying a strata property, you’re not just purchasing an apartment. You’re also gaining partial ownership of the common property, which includes areas like gardens, driveways, lifts, and swimming pools. Any defects in these areas are a shared responsibility, and the cost of rectifying them is divided among all owners.
Additionally, each strata scheme has a set of by-laws governing how residents can use their property. These rules can dictate everything from pet ownership to renovation restrictions. If you plan to lease the property, you should also check whether there are by-laws that could make renting out the unit challenging.
4. Overlooking the Developer and Builder’s Reputation
For new strata developments, the reputation of the developer and builder is crucial. Poor construction quality can lead to costly defects, which may not become apparent until years after purchase. The NSW Government warns buyers to consider the reputation of the developer and builder, and strata manager before committing to a purchase.
Defects in newly built strata properties are becoming increasingly common, with issues such as water penetration, faulty fire systems, and structural defects leading to legal battles and financial strain on owners. Always research past projects by the developer and review any defect rectification history.
5. Talk to a member of the Strata Committee or Owners Corporation
If possible, arrange to talk to a member of the owners corporation or strata committee before purchasing. This will give you insight into how the property is managed and whether there are ongoing conflicts between owners, maintenance issues, or financial struggles. Reviewing past meeting minutes can also reveal disputes over noise complaints, short-term rentals, or excessive levies.
Due Diligence is Essential
Buying a strata property is a significant investment, and failing to conduct thorough due diligence can lead to costly surprises. Before you commit, ensure you:
- Order and thoroughly review a strata report
- Assess the financial health of the owners corporation
- Check for upcoming special levies and capital works plans
- Understand the by-laws and common property responsibilities
- Research the developer’s and builder’s reputation
- Talk to a member of the owners corporation if possible
- Seek the advice of professionals such as a Buyers’ Agent or Conveyancer who will help you interpret the strata report.
At Essential Property Wealth, we help investors deal with the process of buying a strata property, ensuring you make a well-informed decision that aligns with your financial goals.
If you need expert advice on your next purchase, get in touch with us today.
