Q. I’m looking to buy my first investment property and I found an apartment that seems like a reasonable buy, but it’s company title. I hadn’t heard of company title before. Are they bad as an investment?
A. Before the 1960’s when strata title was introduced, home-buyers generally purchased properties governed by company title.
Unlike strata titled apartments where you buy a specific area within a building identified down to the last square metre, a company title doesn’t give you any kind of certificate of title to the real estate. Instead it works like a company with shares, and the buyer receives shares in the company that owns the building. The shares are linked to a particular unit, and also maybe a car space or storage.
While there are definite differences to strata title, that doesn’t straight out make it a bad investment as long as you know what the differences are.
Here are some pros and cons to company title to help you work out if it’s for you.
Pros to company title
- They are typically more affordable than their strata counterparts.
- You save money on strata costs like insurance and administration.
- Resolving basic disputes or addressing problems can be simpler because of less complicated approval processes and strata by-laws.
- The residents are typically owner-occupiers or permanent residents that are all vetted and approved by the Directors, which may lead to more harmonious living and less short-termers coming and going.
- There are very specific agreements associated with company title so you know exactly what you’re getting and what can and can’t be done.
Cons to company title
- You need to be approved by the company’s board, and they will have rules and restrictions on potential owners and who can buy shares. This could either work in your favour or it may prevent you from being able to buy if you don’t fit their mould.
- It’s also likely your tenants will need to be approved, and there may be restrictions on whether you can rent your place out to a tenant, so make sure you know what is or isn’t permitted before buying.
- Lenders are more reluctant to approve home loans for company title compared with strata title, with a few more hurdles in place for the purchaser such as stricter LMI levels, and the lender may want to see the agreement before approving mortgage.
- Because the company directors approve the transfer of shares, or the buyer, your pool of purchasers and how quickly you can sell might be restricted.
- Rents might be a little lower than what could be achieved for a strata property.
- The apartment’s value may not increase at the same pace as strata title units, which doesn’t make for a strong capital growth investment strategy.
As long as you’re prepared to understand the restrictions and allowances of your purchase, you shouldn’t automatically shy away from them, but just be thorough.
If you decide to go ahead, an experienced mortgage broker can help you navigate the complexities of borrowing for a company title, including giving you guidance around which lenders are more, or less, conservative when it comes to lending for a company title property.
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