Should You Buy Properties with Strata/Body Corporate?
Dilleen Property Group 2021
Should you purchase property that have strata or body corporate, or should you just stick to only buying houses?
Firstly, What is Strata/Body Corporate?
Strata and Body Corporate essentially mean the same thing, the terms are used interchangeably between different states in Australia. Strata title allows individual ownership of part of a property such as an apartment, unit or townhouse, combined with shared ownership in the remainder (called ‘common property’ e.g. foyers, driveways, gardens) through a legal entity called the owners corporation or a body corporate. Usually this involved a quarterly levy for upholding the cost of running the building.
Most People’s Mindsets
I talk to people on a day-to-day basis about this topic as it gets asked quite frequently. From speaking to many people over the years, it has become very apparent that most people are brought up by their parents with the mindset of; you should only purchase a house because houses have land and land goes up. They are also taught to be wary of the very large strata bills etc. Most of the time this mindset carries over into their own habits and thoughts.
Today, I’m going to open your mind to something that may change your current mindset or solidify your current mindset.
Getting into Strata
A common detail most people don’t know about strata is that most of the time when you are purchasing a property that has strata, it includes the building insurance for that property.
When purchasing a house, for example, you must pay for building insurance separately for that house to cover the structure of the outside of the house and to cover structural damage due to incidents such as fires or floods etc. this insurance would usually cover the cost to rebuild the house if something major like this happened.
On the other hand, if you purchased a townhouse on the next street over for half the price of the house but you must pay strata, that strata fee will depend on the complex you purchase in, the age of the complex and if it has things like a pool, elevators, if it is high rise etc. If you purchase in a small unit block or a townhouse complex the fee will be less, but the building insurance would usually be included in that fee.
A lot of the time the difference between building insurance for a house and the strata fees for a townhouse or unit will be quite similar in price.
In my own personal portfolio, I have a mix of houses, townhouses, units and villas. I see most other investors only wanting to buy houses, but the reality is, is that houses have a much lower cashflow/yield. I’ve found that if you stick to only buying houses you can become stuck a lot quicker when wanting to grow your portfolio. I have found it more beneficial If you diversify the style of properties in your portfolio so you can spread your risk into different areas and assets classes and properties in general. Sticking to this mindset has helped me build my portfolio to larger degree.
People also tend to say ‘houses have more growth’ but I have bought units and townhouses that have outperformed houses. Each situation is different, and it depends on many factors but from my experience, houses do not always have more growth. It is a ripple effect. If houses are going up in a particular area, you can’t have units and townhouses not going up as well.
My Suggestion to You
I highly suggest you open your mind and listen to people who have experience and who have built up their portfolio. A lot of people are taking advice these days from people who may not own any property at all or who have bought only a couple of properties with little experience.
Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.
