The Simple Guide to Strata Finance

Editorial Staff
Editorial Staff
April 28, 2017
The Simple Guide to Strata Finance

There are three options for raising funds in strata, or a mix of all three:

  1. Regular levies
  2. One-off or special levies
  3. Borrowing

What is the Best Funding Mix?

The best mix will vary according to each owner’s position and the nature of the property. For some, this could be a regular series of small levies, for others a large special levy and for others a strata loan. For most, it will mean a mix of all three.

Situations change and what is right for a group of owners will evolve over time as needs and objectives change. Funding should be reviewed as part of the annual budget exercise. Here are some considerations to take into account:

  1. The extent and cost of the strata project
  2. The nature of the property – residential, commercial, mixed-use, leisure accommodation – each of these will necessitate a different approach to funding
  3. The financial and tax position of each of the owners
  4. The cash flow and taxation impacts of each of the funding options. Independent advice should be sought by owners
  5. Owners’ objectives – do they want the lowest cost of funding? Or to keep levies low? Or do they want large cash balances on hand?

Sinking Funds v Borrowing

Raising levies to build large sinking funds is not the only, and certainly not the best, solution. It takes a long time to accumulate money in a sinking fund, let’s call this the ‘waiting period’.

  • Raising levies places an ongoing financial burden on owners, and they can’t use this money for other purposes during the waiting period
    Projects are often delayed until enough money has been accumulated. The property may deteriorate further and increase legal and financial risk during the waiting period
  • Some owners will sell, and never see any benefit from the increased levies they have been paying

Benefits of including a strata loan as part of the funding mix

  • The works can be completed immediately
  • Investors can seek better rental returns and occupiers enjoy the benefits of living in the improved property
  • The works are completed at today’s costs, and the property value is enhanced
  • Once works are completed, property sales will likely benefit from higher prices

How does a Lannock Strata Loan work?

  1. Contact Lannock for a Loan Proposal to fund the strata project. Discuss this with the owners
  2. Ready to proceed? Lannock will provide a Loan Contract to be tabled and approved at a General Meeting. We are available to attend at the owner’s request
  3. As the works are completed, the body corporate draws down funds from Lannock to pay contractors
  4. You can draw as many advances as required, up to the amount of the Loan Contract. You only pay for what you use, when you use it

About our Funding

  • Only pay interest on drawings
  • Draw as many advances as required
  • No initial outlay
  • Choose your term and repayments

We are a specialised lender and pride ourselves on being competitive and easy to deal with. We provide funds directly to the body corporate – we do not lend to the individual owners. Our funding is completely unsecured – there are no mortgages, banker’s liens, charges or caveats. Because we provide funds to the body corporate directly, we do not investigate the financial position of individual owners of units. We do not require owners, committee members or the strata manager to give personal guarantees. The strata manager is not required to certify documents.

Contact Lannock for more information.