That sinking feeling

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Nobody loves levies and if there’s one pot o’ money that we hate pouring funds into it’s the sinking or maintenance funds.

Most state strata laws require schemes to have a plan for the future maintenance of their common property, so that when the roof starts leaking or the wall start cracking, money has already been set aside for the rainy days yet to come.

Well, not quite – you do have to have a plan but in most states you don’t necessarily need to have the money in the bank to match it.

And that can be a major problem, especially for people on fixed incomes, because unit owners are bound by law to maintain and repair common property, whether or not there is enough cash in the kitty.

So what do you do if the ceiling is caving in and the biscuit tin is empty?  The most common solution in the past has been to strike a special levy to raise the money in one hit.

And while that may seem like just deserts for owners who have penny-pinched on repairs for decades, it can be a bit harsh if they have to sell their units because they can’t raise the extra levies (which can add up to tens of thousands of dollars).

There is, however, an alternative: strata finance.  Basically, this is a specialist, unsecured loan at a consequently higher interest rate that allows owners corps to get the work done but spread the cost over several years.

The loan is unsecured because, by law, owners corps are not allowed to offer common property as a surety, and common property is all an owners corp owns.  However, owners can enter a binding contract that guarantees that they will, collectively, pay back the loans at an agreed rate.

The leader in this field is, ironically, the smallest player.  Lannock Finance were among the first to enter the strata finance market and are now reckoned to write about 70 percent of the strata loans in the country.

Their CEO, Paul Morton, is almost evangelical about the financial wisdom of strata loans and will put up a convincing argument as to why any other form of financing repairs is money down the drain.

Next, and a much larger entity, is Macquarie Bank which has the benefit of holding the vast majority of strata funds on its books and in recent years has become very active in this area.

And a relative newcomer to the field is Westpac which has realised the potential of not just a growing market but an ageing building stock which is starting to need a little TLC … and a lot of cash.

So don’t despair if your sinking fund has been allowed to run dry by the cowboys who used to run your block … you can always call on the loan arranger.

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