Is there enough in the sinking fund? (2024)

John Edwards, executive chairman, Strata Associates

"Buyers should look at the condition of the building. Is it in good condition or does it need a coat of paint? Do the windows need replacing? Are the gutters in good condition and are the carpets in the common area all right?

"Then have a search done of the Owners Corporation books, which will show what funds are in the administration's sinking fund. Look at the balance of the sinking fund and how much is being contributed a year into that fund. Then seek advice.

"If the sinking fund has a minimal amount and there is a lot of work to be done, then there is a big chance a special levy will crop up after they buy it. If they also see only a minimum amount being contributed by owners into the fund, it should sound alarm bells.

"If the building is in good condition and the owners are contributing a reasonable amount into the sinking fund, then they can probably think it is being run pretty well and the likelihood of a special levy is minimised. If the building is in bad condition but there is a lot of money in the sinking fund then they can see there is money to meet the commitments."

Stephen Goddard, chair of the Owners Corporation Network

"Sinking funds should really reflect the size of the building. If buying into a large strata scheme, you would expect a sinking fund to be hundreds of thousands of dollars. Equally, if you are buying into a block of six, the sinking fund could be reasonable with a balance of only $60,000, because it is a matter of proportion. That's the first test.

"The second test will be to ask yourself if there is enough to preserve the quality of the common property. It is the sinking fund that will be used to reinstate the common property when it wears out. If the common property is depleted, this big investment of yours will be depleted, too. The consequence of not enough money in the sinking fund will be the surprise special levy.

"If there is evidence of bad governance in the building, it may be wise not to buy there ... Remember, the healthier the sinking fund, the safer your investment. It should be called the floating fund because it keeps the building afloat."