For many strata holiday property owners it’s a matter of out of sight out of mind. The income from the unit keeps ticking over nicely, surging at peak holiday times such as Easter.
But increasingly, ageing strata short term lettings are under threat as social media sites such as Trip Advisor expose underwhelming guest experiences while promoting shiny, attractive alternatives.
Holiday strata owners need to be aware that guest reviews have potential to impact on future yields. Even buildings that have been well maintained inevitably begin to show their age and lose their appeal to guests. Social networking sites pose a significant threat to strata owners. There’s nowhere for a shabby building or dowdy guest lobby to hide when guests offer brutally honest reviews that undermine future bookings.
The fact that investors in resort strata units usually live a considerable distance from their investment means many may be unaware of the need for refurbishment until bookings and returns begin to fall away.
Owners rely on their strata manager to ensure regular maintenance and prompt attention to repairs. Things become more challenging when the building gets to the point of requiring significant capital works to maintain its value.
Usually owners will be geographically dispersed and in all likelihood will have an equally diverse range of investment goals. However nobody’s best interest is served if the building is the last resort for holiday-makers so the only financially sound option is to spend the money and protect the asset.
Owners can fund capital works through regular levies, one-off levies, borrowing or a mix of the three.
Borrowing should always be considered amongst the options. For investors it’s off balance sheet and likely to be a cheaper option than a sinking fund.
It is also less onerous for owners than a special levy that can affect the ability to pursue other investments and take away cash from other lifestyle activities.
In situations where future works were complex, owners needed to be aware of the cash flow and tax impacts of each of the three funding options.
The best way to fund capital works depends on many variables: the nature of the property but equally each owner will have their own view of what’s right for them based on their personal financial and tax position and taking into account a range of competing objectives.