Planning Major Works What gets you the best return?

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Thu, December 12, 2024

Paul Morton, subject expert and founder of Australia’s leading strata lender, Lannock Strata Finance, shares some insights into how to approach your decision-making for major works projects.

How do you decide which major works project is most appropriate? What are the available sources of funds, and how do you make the best choice? Is the cheapest quote the best quote? How does tax affect your decisions?

These are just some of the questions to ask when considering major works. But before we consider your major works, let’s look at a range of reasons you might need to invest in common property works:

  • Legal duty to “repair and maintain”

  • Risk to maintaining insurance cover if property is not maintained

  • Occupational Health and Safety considerations

  • Reducing legal liability from accidents

  • And reasons you may want to invest in works:

  • Return on Investment (ROI) – Increased asset value or increased occupancy rates

  • Personal satisfaction (e.g. is this a place I want to live in)

Value in Major Works Projects – Price, Quality and Time

We all know the idea of the Project Management Triangle, where achieving equilibrium between speed, cost and quality is impossible. But strata is more complex because everyone will have a different idea of what “value” is. What is important to you? Is it functionality? Is it aesthetics? It is important to consider that you may not just wish to replace something that needs replacing, but to also improve it and to improve the return on your overall investment.

All of this sits alongside the core decision-making matrix for price, quality and time. What if some Body Corporate members value price, others value time and the rest value quality? If not everyone agrees with the decision-making priorities, then you may find the Body Corporate is not aligned on what they value. Getting agreement is extremely hard, so in our experience, it is important to work out the agreed objectives at the very beginning.

In the Body Corporate, it’s important to have a shared understanding of how you’re looking at ROI. Are you all considering it in post-tax dollars? Or are some Body Corporate members looking at ROI in pre-tax dollars? Taxes can make a big difference to net returns. To avoid misunderstandings and to ensure everyone’s on the same page about the project’s value, it’s best to calculate ROI in post-tax dollars. This way, you’re all comparing apples to apples.

Fast, Good, Cheap

Increasingly we see first-hand the problems caused by the pursuit of “any product at the cheapest price”, particularly with the cladding and defects problems across the country. In some cases, different Governments have stepped in to assist, but it all comes back onto the owner.

You get what you pay for in terms of price, quality and time. Almost everyone focuses on price – and why not! But you don’t want cheap and nasty (truth is, you can’t actually afford that in the long run), you need to think about value for money. This is where Lannock’s experience becomes useful. It is not just about cost and expense.

I think we need to replace the words “expense” or “cost” with the word “investment”. Whether you are fixing some pavers, replacing your cladding, or putting a penthouse on top, restoring value lost or creating value, you are investing in your property. This helps you to start seeing the opportunity of a return on your investment.

What else do you need to consider in terms of getting the best value? Should you manage the project yourself/yourselves? Now, this is a tricky part of the decision-making, which has huge potential or unexpected implications – often in cost, time and quality.

Potential project managers are Body Corporate members, members with special interests, your strata manager or a third-party project manager. The challenges of self-management include accountability, resource allocation, legal liability, skill requirements and role clarity.

We often see a lack of good project management which can mean more problems. Understandably, the Body Corporate often feel they can save money, depending on the situation and the Body Corporate, but what if something goes wrong? There is also a legal liability to be considered. And the human impact of stress should not be underestimated, particularly for owners living “on-site” in the property.

Whatever you do, we recommend you don’t delay your decision when it comes to major works, as delays add significantly to the cost.

Financial Solutions for Major Works

Lannock Strata Finance provides flexible funding solutions to alleviate the financial burden on strata communities. These options allow for works to be carried out immediately, avoiding the risk of further damage caused by delay, whilst smoothing the cost impost on owners of having to fund the full costs of repair upfront.

Understanding the challenges of the work you need to be done and the financial solutions offered by Lannock to help you achieve this is essential for individual owners and strata communities.

We can tailor a flexible funding facility to suit your project-specific needs.