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[Jimmy-T]

A few weeks ago I caught up with Paul Morton from our sponsors Lannock and he and I worked through his whizzbang spreadsheet software that showed, to my great surprise, how it can cost more to save up the money to fix common property than it does to wait till it needs to be fixed, then get a loan to do it.

This is a pretty controversial point of view but if it’s true and you as ordinary owners are paying more for repairs by saving up than you would by borrowing, it has to be examined.  Right now when interest on invested money is low and the same applies to borrowed money, the case has never been stronger.

Anyway, if you want to read Paul’s theory in detail, just click HERE

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[Jimmy-T]

Yes.  I will amend to make it clearer.

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[Waratah]

When you say:

I personally think strata loans are a more equitable form of raising finance and they are probably less likely to scare the horses.

do you mean fairer than, say, a special levy?

Could you explain why you that is?

While it does spread payments out over a longer period of time, it does mean people end up paying more. in the case of our building it would be close to an extra million in interest. Unsurprisingly there’s quite a few people who would prefer to avoid that.

I suppose it’s like buying a house – few of us can pay for a house up front but can afford regular payments over a couple of decades. Maybe I’ve just answered my own question?

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[Jimmy-T]

@Waratah said:
When you say:

I personally think strata loans are a more equitable form of raising finance and they are probably less likely to scare the horses.

do you mean fairer than, say, a special levy? Could you explain why you that is?

Well, it’s just my opinion but do you think it’s fair that some people might have to sell their home, and at a reduced price because of the special levy, while others who happen to have the money in the bank can ride out the storm?

This is particularly hard on people who have recently bought in and are only now realising that failure to have enough in the sinking fund – often because of the selfishness and neglect of previous owners – means they have to foot the bill.

Sure, there’s an element of bad luck involved but if there are ways of spreading the load, then why not take them.  

Investors, especially, are notorious for not pursuing defects when they have the chance, then scrimping on sinking fund payments to maximise their profits, then insisting on special levies to save a few extra dollars when they have been culpable in the work being needed and the money not being there to pay for it.

However, our esteemed “Better regulation” Minister could be looking at ways of allowing those who want to pay in one hit to do so, while those who can’t afford to pay a special levy can take out a strata loan.

Perhaps we should get Labor to suggest it then the government will adopt it as their policy, as they’ve done with ‘no fault’ evictions for renters.

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[Waratah]

Thanks Jimmy, that is very helpful. I don’t have a feel for how many people in the building are for or against the idea of a strata loan right now.

One thing that has been suggested is that people who can’t afford the special levy in one hit without borrowing could organise their own loans/reverse mortgage, so not everyone needs to pay interest.

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[Jimmy-T]

That seems sensible – but you never know how hard or easy it is for individuals to raise extra loans.

One thing I would say, at the risk of sounding biased, you should speak to Paul Morton at Lannock (or one of his people) so that you know exactly what your options are.

I know they were recently involved in lending a large sum to a building so that it could not only refurb but add a couple of units to sell and pay for the refurbishment. It doesn’t have to be all negative.

The main thing is, you won’t be able to make an informed assessment unless you have all the information.  The strata loan bogeyman could turn out to be a blessing in disguise and you won’t know until you ask.

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