Strata Finance Explained
Tuesday October 17th, 2017
What is it?
When an owners corporation or body corporate needs money for renovation or rectification works, emergency repairs, green initiatives, insurance premiums, litigation or other capital requirements there are essentially three options to choose from:
- use money from a sinking fund
- raise a special levy
- take out a loan to cover the costs
All options are viable and should be considered depending on the circumstances but what if there is no money available in a sinking fund? Special levies are not often the favourite choice of owners as they are required to find the money to pay for this unplanned expense. By choosing strata finance however, funds are provided directly to the owners corporation or body corporate and the expense is paid through levies over time thereby taking away the burden of a lump sum. Strata financing provides the ability to commence work immediately without the need to raise unpopular special levies or wait for enough money to accumulate in a sinking fund.
What are the benefits of strata finance?
There are many benefits of using strata finance including the following:
Peace of mind
- The loans are unsecured and offered directly to owners corporations or bodies corporate
- By taking out a loan a strata community is reducing the immediate cost burden for works
- Funds can be accessed quickly once approved and projects can be carried out with minimal delay
- Cash flow is freed up
- Loans can be used for funding of mechanical, aesthetic and structural repairs and improvements to buildings
- Strata financing can save time and expense plus provide complete certainty of funding
- It allows repairs and maintenance to be completed immediately without further deterioration
- Finance may offer greater flexibility and peace of mind that capital values and building standards are being improved
- Instead of doing small jobs as money becomes available, multiple repairs, maintenance or refurbishments can be bundled into one project, saving time and money whilst minimising disruption to owners
No large financial burdens
- Loan repayments are incorporated into quarterly levies/fees
- There is no mortgage or personal guarantee required to secure a loan
Increase the value of an owner’s asset
- Repairs and improvements will help maintain and improve the value of an asset
- For investors, rental and tenancy stability are enhanced
Who will benefit from strata financing?
The owners corporation or body corporate will benefit as they will be able to make decisions quickly and not need to drag out the process to raise funds for essential works.
The owners will benefit as they will not be lumbered with the burden of having to pay a hefty special levy. They will also see that the value of their asset is maintained and often improved.
The building will benefit from having works completed quickly and not experiencing further deterioration or inconvenience to owners.
The decision of which funding option your strata title uses will depend on the circumstances but you do have choices and should consider them all.
This Article was contributed by Janette Comish of Strata Loans.