Are strata properties always a bad idea?
I’m often asked the question about whether or not an investor should discount buying strata properties. And my answer is always, depends. Because there’s no one answer for that and to be honest, it’s always preferable to be able to buy a house on its own piece of land. But let’s be honest, in a lot of the investment grade suburbs, a lot of people can’t actually afford to do that.
And so I just want to back up a little bit before I answer that question because in previous videos, we’ve talked about the fact that we need to get the strategy right first, the suburb right second and then the property right third. And I always think that a lot of investors get it the other way around where they go property first, suburb second and strategy third. So if I stay true to that model and I get the strategy right, so I know what to buy and when. And then I need to determine suburb to buy in and then I’ve researched and I’ve uncovered an investment grade suburb. It doesn’t make sense for me to then have rules around the property that limits some really good options. So by that I mean, if I can only afford a strata type property in the suburb that I’ve identified as a really good investment grade suburb, I should seriously consider it. So that’s the first point. Secondly, I think there’s different types of strata property. So, we’ve got the principles of owner occupier appeal, investment grade and have some form of scarcity. So it’s that third one in mind, the scarcity that’s really important because if I’m buying a strata property in maybe one of eight, that is so incredibly different to buying a strata property that’s one of two hundred.
And so I think that’s really important thing for investors to think about because the blanket statement that “I won’t buy a strata or a body corporate style property”, has a lot of misnomers about it or mistruths or misunderstandings and when we unpack that a little bit, you can actually make better and more informed decisions.
So let’s have a look, what is a strata property?
It’s basically when you have some form of common property that‘s shared amongst two or more people, that you don’t have direct control over. So imagine four townhouses that have a common driveway and essentially the buildings of those four townhouses are the responsibility of the body corporate. The body corporate will get joint insurance over all of the buildings. They’ll get public liability insurance over the driveway, should someone trip over and hurt themselves. It’s actually a way to get group interests to work together as one. Now where most people have negativity towards strata fees and strata complex is when they start to get too big and they lose the personal touch and they lose that human component.
So my advice is very simple, strata property can make for a great investment if you buy one that’s in a small enough complex and you take an active role on the body corporate to help make the important decisions. And you have body corporate that wants to put some money away for a rainy day in the form of a sinking fund so that there’s some resources to draw upon at some point in the future when the building needs some maintenance. I think they can make for a very good investment, because if I’ve got the first two right, I’ve the strategy right and I’ve got the suburb right and then I get the right type of strata property within the context of those other two. I’ve seen people do very well in those circumstances.
So the question of should I discount strata properties altogether, my answer is no because there are some strata properties that do make for a great investment. The real skill and the real science is behind finding which of the properties make for a good one under that strata label and which ones are the ones that you really should avoid. And that’s essentially comes from experience and getting someone who knows what they’re doing.
I always think, if you’re going to climb Mount Everest, you need a Sherpa to help you get to the top because they’ve climbed the mountain before you. So it’s a bit like having a Sherpa when you’re investing in property. Ask someone who’s done it before you and what does investing in a strata or a body corporate actually mean for you? And you might actually be surprised about what you do find out about those types of properties.