Monday, 1 December 2014

Trap #4: Underestimating the impact of Body Corporate Fees

These can be a killer and can very quickly swallow up any profit or cash flow from your property. Know what these are upfront or you could be thousands of dollars behind in cash flow even before your property earns one dollar of rental income for you.

Body Corporate Fees (BCFs) apply to properties that are typically units and hotel-style apartments.  Every unit owner in this type of complex gets billed for a portion of the maintenance expenses for what are known as “common areas”. Common areas typically include; swimming pools, tennis courts, gyms, elevators, landscaping, driveways and so on. Whilst apartment buildings with these features look nice and attract tenants, it’s you who has to foot the bill of maintaining them. The more of these facilities a building has, the more are the BCFs and the more costly it is then to have an investment unit in this type of property.

Don’t fall into the trap of underestimating what the BCFs are and what they could increase to. Make sure you get the body corporate records for the last 2 years on the property and go through them in detail. Look at how much they have increased over the last few years and see if the rent has kept pace with the increase. Sometimes you can’t pass on the increase in your BCFs to your tenant because the market simply will not bear the increased rent for the type of property you have.  

Also ask you solicitor for the minutes for the body corporate meetings for the last 2-3 years. What you are looking for here are any mention in the minutes of any large pending repairs to the building that you are about to invest in. As a unit owner, you will get slugged with unexpected capital expenditure if no allowance has been made in the sinking fund. Find out how much is in the building sinking fund.

The sinking fund is like a pool of cash set aside for ongoing building maintenance. The last thing you want is buying a property only then to get a body corporate bill to resurface the entire cark or replace the building air-conditioning system. One of my clients, just after he bought a unit in a high-rise complex, received a bill for an extra $4000 that he wasn’t expecting for this exact reason.

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