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Investing in strata? Here’s what you need to know

Strata investment can be a great way to build a nest egg for you and your loved ones’ future. But it’s important to do your homework if you want to avoid being stuck with a lemon.

2019 is already shaping up as the year of the home buyer. At least that’s the view of the man behind peak industry group the REBAA.

Real Estate Buyers Agents Association (REBAA) president Rich Harvey says there are a raft of reasons why home buyers and investors should look at ramping up their activity in the next few months including the fact that a softening market means there are some great deals to be had.

While natural population growth and migration will continue to drive future demand in the year ahead, Harvey says the looming federal election presents the perfect opportunity for astute investors to consider buying strata properties with less competition at open homes as a result of uncertainty about Australia’s future economic climate.

Harvey says similar to the purchase of standalone houses, investors seeking to purchase a strata property should always base their decision on how “the numbers” stack up.

Harvey, who established REBAA nearly two decades ago and now has representatives right across the country, says the decision to purchase a strata property should be driven by three key factors: the property’s location, the strategy behind the purchase and the individual merit of the chosen apartment or townhouse.

When it comes to sourcing the right location to begin building your strata investment portfolio, it’s important to be wary of investing in areas that are already oversupplied. Instead, Harvey advises would-be investors to look for properties that are different to others around them.

“There’s a lot of apartments out there that look the same. If you’re going to be an investor you want to pick an apartment that differentiates itself from other apartments. If you’re buying an apartment in a block of 200… it can be very boring because they’re all going to be very similar. But if you can buy one that has a lock up garage, a large internal space, a nice balcony and that is very attractive it’s going to be easier to rent out and easier to sell.”While individual state laws – such as NSW’s Strata Reform Act – are an important component to consider so too are issues such as ongoing strata fees which can have a dramatic impact on cost and whether the property is a sound investment, he says.

“In a lot of strata apartments there can be very high strata fees because amenities like lifts, gyms, swimming pools and concierges can dramatically increase the overall cost on your property. I think some investors forget that.”

Before the decision is made to purchase a strata titled property, it is worthwhile considering getting a strata inspection done to check on the health of the strata committee’s finances. This will also help identify if there’s any current or ongoing issues that may hit you in the pocket further down the track, Harvey says.

He says where most strata property investors go wrong is that they fall in love with the property initially via its brochure, and once they have seen the taps or the benchtops or the appliances.

“They get attached to the look and feel of the property rather than looking at the fundamental drivers of investment which is the location and the scarcity of property in that location. Rookie investors make an emotional decision and that’s where they go wrong.”

Where possible, Harvey suggests it is prudent to work with a buyers’ agent to help build or extend your strata property portfolio as not only do they have access to a greater network of properties, but they can also assist with negotiations and ensure that the chosen property meets the investment grade by offering an authentic appraisal.

 

Things to be wary of when considering investing in a strata scheme

* Property deals where mortgage broking, conveyancing or tax advice are supplied by the spruiker
  • Providing an inference that their system is ‘government approved’ by frequent mention of the Australian Taxation Office (ATO) or Australian Securities & Investments Commission (ASIC)
  • High pressure tactics rushing you into decisions, signing contracts or paying fees (including discounts offered to seminar attendees who sign up on the day)
  • Spruikers offering personal loans or credit to help you pay the enrolment fees for training courses
  • Property investment strategies that put your current home at risk by using the equity to borrow significant money to invest
  • Evidence of capital growth rate that may not be independent or credible
  • Spruikers who don’t allow you to ask questions or ignore or downplay the risks and costs involved
  • Spruikers who suggest specific investment opportunities such as a particular property development. They may be receiving a commission for promoting the development or have an undisclosed interest in it
  • Spruikers pushing you to buy properties interstate that you have not seen, or off the plan properties that do not yet exist.
Source: Fair Trading
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