ARCHERS - connecting strata communities

State of Mind

 

I talk to a lot of strata managers and they frequently tell me about the divide between owner-occupiers and investors in strata.

 

The common perception is that owner-occupiers are only concerned about lifestyle - who parks where, are the rubbish bins in their place, who used the pool after 11pm and so on.  On the other side, investors are supposed to only concern themselves with financial return and don't care about conditions for people living in the building. 

 

Or so everyone thinks.

 

And when it comes to participating in management of the strata - whether being on a committee or coming to a general meeting - the common view is that it's owner-occupiers who put in and investors who take the free ride.

 

If it's not World War III brewing, you'd imagine that at the least we have a Mexican stand-off between the two groups.

 

It's time we took a more reasoned view.

 

Let's look first at owner-occupiers.

 

Clearly, lifestyle issues in strata are going to be critical.  What else can you expect when it's your home!  However, I haven't yet met the owner-occupier who isn't concerned about the capital return aspects of their investment.  And if I ever do, I'll tell them that they should be concerned!

 

Every owner-occupier at some stage is going to leave the property - they'll sell and move to a place better suited to their needs as they move through life or they'll leave it to their kids.  Either way, sale price, and so property value, is critical.

 

It's unfair to criticise investors about seeking return - that's the whole reason they made the investment!  But every investor must also be vitally concerned about lifestyle - it's the way a prospective tenant feels when they walk up the path, into the foyer and along the corridor to the unit that determines how much rent they'll pay and so the investor's rental return.  And it's the way a prospective purchaser feels when they make that same walk that determines how much they'll pay for the unit.

 

Having the best possible lifestyle and getting the best investment return go hand in hand.  What you do in one area will benefit the other.

 

So, what should we do?  Owner-occupiers and investors should realise that they have common goals - maximising lifestyle and maximising capital return are not mutually exclusive, you can achieve both at the same time.

 

There's no doubt - a well-maintained and continuously improved property will yield the greatest living conditions for residents and the best returns for all owners.

 

But how do you approach the important decisions that achieve this outcome?

 

In our work at Lannock we've uncovered several important principles:

 

First:  Separate the decision about what works you'll do from the decision about how best to fund them.  You don't want to be seduced (or forced into) a "cheapest is best" mentality - it's common sense that cheapest is usually nastiest.

 

Second:  Make the decision about what work to do (and who should do it) using Return On Investment as your guide.  "Will investing in this project yield a positive return for us in terms of our lifestyle and capital investment?"

 

Next:  Consider the relative merits of your three funding options - all the advantages and all the disadvantages of sinking funds, special levies and strata borrowing - when you come to make the decision about how best to fund the work.  It's not compulsory to have a levy to a sinking fund and strata borrowing will frequently be the cheapest form of funding, especially when investors consider their after-tax position (see your accountant).

 

And a final note on participation - investors, step up to the plate!  Executive committees and general meetings will benefit from your energy and expertise.  Your efforts to improve lifestyle for all residents will reap dividends in terms of your own capital return.

 

More information is available at www.lannock.com.au, or you can contact Paul on 1300 85 15 85 or paul@lannock.com.au.