Expert Advice

Seek advice when investing ‘sinking funds’

B2B Editor3 February 2016

Seek advice when investing ‘sinking funds’

When it comes to money, I rely heavily on the advice of my accountants and financial advisers, even though I consider myself better than average in my understanding of money, finance and investment. I am, however, smart enough to acknowledge this is a complex environment, and hubris is not my ally when it comes to making sound decisions for my financial future.

There is an obvious corollary applicable to Strata Management.

Many owners and Executive Committees expect their strata manager should be a jack-of-all-trades. And to be fair, this is generally a reasonable expectation. A strata manager should have a competent grasp of many fields, including accounting and finance. The issue arises when this expectation extends to requesting advice and strategy on matters that are best left in the hands of experts. This applies across the board, however one area in particular that I don’t think gets much attention is the way in which Owners Corporations invest their money.

Legislation was passed a number of years ago in the ACT requiring that an Owners Corporation plans for the future by way of a 10 year ‘sinking fund plan’ and contribute accordingly. When you consider buildings with lifts, external painted facades, mechanical plant and other expensive infrastructure, the funding requirement can be very large. The result can be hundreds of thousands of dollars and, in some cases, millions of dollars of surplus funds sitting in an account waiting to be spent at a future point. Often this money is held in a simple cash management account attracting very low interest.

As strata managers, we are often the custodians of these funds. It is not uncommon for an EC to look to us to ensure that their money is working on their behalf, and although the more experienced managers will have some knowledge, they will rarely be the best source of advice when it comes to ensuring that your money is performing.

Better performing investments result in better returns, which can be offset against future levies or simply added to the pool for future improvements. It is important to get it right.

Whenever I am asked the question ‘what should we do to make the most of our sinking fund?’, my answer is invariably to seek out people who are smarter on the subject than I am. This seems like an obvious solution, however all too often Committees forget that the role of a strata manager is to organize and coordinate rather than to be the oracle of all knowledge on matters that will be faced by them.

For further information, please contact Chris Miller, General Manager
M:0400 376 208
F:6239 5711
The Griffin, Corner Giles & Jardine Streets, Kingston
PO Box 5044, Kingston ACT 2604

Vantage Building Trust