The alternative to special levies
Strata Finance is a specialised type of lending for owners of strata-titled units. It is available for building improvements, repairs & maintenance, council orders, insurance, legal fees - in fact, just about any worthwhile purpose for a strata corporation.
Traditionally, when a strata corporation had to spend more money than it had available in it's sinking fund, the only option was to raise a special levy from all of the unit owners. But what if, as a unit owner, you don't have the money available? Where does it come from?
The solution is for the strata corporation to borrow the money itself. Obviously, it requires agreement between the majority of the unit owners and special resolutions need to be approved (including an increase in your quarterly levies to cover future loan repayments), but strata finance does not require a mortgage over any real property or guarantees from individual unit owners. So no matter what your personal financial position, it won't prevent your strata corporation from obtaining strata finance.
Just as importantly, special levies are usually required as lump sum payment upfront whereas the repayments on strata loans are paid monthly in arrears over the life of the loan. The makes managing your cashflow much easier - particularly if you've only recently bought your unit and borrowed the maximum your lender will allow.
And now for the kicker. Since the strata corporation is the borrower, the obligation to repay the loan (via your quarterly strata levies) passes to anyone who buys your unit from you - which is only fair considering they're getting the pleasure of the improvements previously done to the building. But if you play your cards right, you may in fact be able to get an even better sale price by taking out a strata loan and completing the improvements to the building before you sell!
In summary:-
- No mortgages over real property required;
- No personal guarantees from unit owners required;
- No need to tie up equity in your own unit;
- Allows you to manage cashflow more easily;
- Allows you to pass on the loan to future unit owners; and
- Allows you to maximise the sale price of your unit by completing improvements before you sell
