If you're buying an apartment as an investment, the building's sinking fund deserves just as much attention as the rental return and the condition of the apartment itself. Major repairs to a roof, lift or common areas can affect every owner, and a poorly funded strata scheme may require substantial extra contributions.
A sinking fund, known as a capital works fund in NSW, helps a strata scheme plan and pay for major common-property expenses over time. Before purchasing, it's worth checking how much money is available, what work is coming up and whether the owners are contributing enough to cover it. Otherwise, a large special levy could put pressure on your investment property's cash flow at the wrong time.
Here's what to look for in the fund, which questions to ask and how to prepare if the building needs more money than it has set aside. In this blog, we go into detail about what a sinking fund is, the key questions you need to ask, and some of the challenges you might come up against.
What is a Sinking Fund?
From roof maintenance to lift repairs, building expenses can be very costly and add up over time.
A sinking fund is money set aside by a strata scheme to help pay for major repairs, replacements and planned work to shared parts of the building. It is funded through contributions from lot owners and guided by the scheme's expected future expenses. The purpose is to prepare for work such as replacing a roof or lift, although unexpected costs can still arise.
The terminology and rules vary across Australia.
- In NSW, the fund is called the capital works fund, previously known as the sinking fund.
- In Queensland, body corporates generally maintain a sinking fund and sinking fund budget, subject to the rules applying to the scheme.
- The ACT also uses the term sinking fund.
- In Victoria, certain owners corporations must prepare a maintenance plan and maintain a corresponding maintenance fund. Requirements elsewhere differ, so check the rules that apply in the property's state or territory.
This fund is separate from the administrative fund, which generally pays everyday building expenses such as cleaning, utilities, gardening and routine maintenance. Both are supported through strata levies, so the total cost of owning an investment apartment includes more than the regular mortgage and property-management expenses.
For NSW strata schemes, a 10-year capital works fund plan outlines expected major expenditure and contributions. The plan must be reviewed at least every five years, and new or revised plans must use the prescribed standard form. A plan helps investors understand anticipated costs, although it cannot guarantee that every future expense has been forecast.
Owners’ corporations get into trouble if the sinking fund isn’t replenished and the building isn’t adequately maintained when, suddenly, they find themselves trying to fund major repairs to a building that is unsafe, or which doesn’t meet the legal requirements.
In general, long-term planning for and maintenance of the building will help reduce the need for major expensive fixes later down the track. Remember, how well looked after a building is plays a key role in a property’s capital growth. Buildings that might need major renovations just to meet the legal minimum standard, costing every apartment owner thousands, are harder to sell!
Key Questions to Ask About a Sinking Fund
If you're considering a strata apartment as an investment property, start with these questions. The answers will help you work out whether the current levies are realistic and how exposed you may be to extra costs.
- How much money is in the sinking or capital works fund? Check the current balance alongside upcoming commitments. A large balance can still be inadequate if major work is due soon.
- What does the long-term maintenance plan say? Look for expected projects, estimated costs and timing, and whether the plan has been updated to reflect the building's condition.
- Are the regular levies enough? Compare planned contributions with future spending rather than assuming low quarterly levies are always a benefit.
- Have special levies or major building defects been discussed? Review recent meeting minutes, reports and any proposed works that haven't yet been funded.
- Are owners keeping up with payments? Material levy arrears can create cash-flow pressure for a scheme even when its maintenance plan is reasonable.
These questions are particularly important if you're buying into an older building, a complex with lifts or significant shared facilities, or a newer development where expensive defects may not yet have become apparent. They also apply when reviewing an apartment you already own.
Don’t be reassured by a modern-looking building, either. If there’s minimal regular maintenance and no contingency fund, it doesn’t matter if the building is five years old or fifty.
Which Strata Records Should Property Investors Check?
Before buying, ask your conveyancer or strata inspector to review the scheme's records rather than relying only on the advertised quarterly levy. In NSW, prospective owners can inspect strata records for a fee, including financial information and meeting documents. The process and available records vary between states.
- Current fund balances and financial statements. These show how much money is available, what has been spent and whether owners have unpaid levies.
- The 10-year capital works or maintenance plan. Compare scheduled works and cost estimates with the money expected to be collected.
- Recent AGM and committee meeting minutes. Look for discussions of defects, insurance issues, major repairs, cost increases and proposed special levies.
- Relevant building and engineering reports. These may identify works that are not yet reflected in the current budget.
- Current levy notices and upcoming budgets. Check what you would actually pay and whether an increase has already been proposed.
Ask your conveyancer or strata inspector about anything that seems inconsistent. A fund balance on its own tells you very little without knowing the building's future obligations. A property that looks affordable based on its purchase price and current rent can become far more expensive to hold if substantial common-property work is approaching.
Examples of Sinking Fund Expenses
Your sinking fund is essentially a building maintenance fund. Examples of expenses that could be paid for by a sinking fund include:
- Roofing
- Lifts
- Common air-conditioning
- Painting for external walls or internal common areas
- Replacing fixtures such as lights and ceiling fans
- Repairs for common property
- Structural repairs
- Plumbing overhauls
- Energy efficiency upgrades
Maintaining common property can help protect the building's condition, tenant appeal and long-term investment prospects. However, completing major works doesn't automatically increase the rent or sale price, and some repairs are necessary simply to keep the building safe and functional. For an investor, the immediate benefit may be avoiding more costly deterioration, extended disruption or an unexpected expense later.
What is a Special Levy?
If the strata scheme doesn't have enough money to cover a major expense, the owners corporation may raise a special levy. This can happen after unexpected damage, the discovery of a building defect or the approval of planned work that exceeds the amount available in the capital works fund.
Special levies are approved through the meeting and voting process required by the legislation governing the scheme. In NSW, for example, the owners corporation can vote to introduce a special levy at a general meeting. The rules should not be described as requiring the support of every owner. Once validly approved, the contribution can be payable by owners according to their unit entitlements, even where an individual owner voted against the proposal.
The financial impact depends on the cost of the work, the money already available and how contributions are allocated between lots. A special levy may still be needed in a building that has a maintenance plan, particularly when costs have risen or an unforeseen problem is uncovered.
In practice, a special levy means a big, probably unexpected bill for the property owner. Some owners might have the money to meet the special levy but others might not.
How Much Could a Special Levy Cost an Investment Property Owner?
Imagine a 12-apartment building needs $240,000 of major roof and waterproofing work. The owners corporation has $90,000 available for the project after allowing for other committed expenses, leaving a $150,000 funding shortfall. If the owners vote to fund the entire shortfall through a special levy, each apartment would contribute $12,500 if all 12 lots have equal unit entitlements.
For an investor already covering mortgage interest, strata fees, insurance and maintenance, an unplanned $12,500 bill can be difficult to absorb. In practice, contributions depend on the scheme's unit entitlements, approvals and payment arrangements. The example shows why it's important to compare the fund balance with planned work rather than judging a scheme by the balance alone.
In any case, if and when you sell the apartment, your buyer has a right to know details of the sinking fund and any special levies raised. These are key due diligence items any well advised buyer is going to look at closely. That means they directly impact the salability of the property, the competitive dynamics, and the price
The good news is you have the same right to that information when you’re buying. That means you can make sure a well-funded sinking fund is in place, minimise the need for special levies, and reduce your risk.
What Can Property Investors Do About an Underfunded Sinking Fund?
If the fund is consistently short of what the maintenance plan requires, ask the strata committee or manager how the proposed budgets address the gap. Depending on the scheme, owners may consider changes to regular contributions, scheduling of works or obtaining updated professional advice. Avoid assuming a low quarterly levy makes an apartment cheaper to own in the long run.
If the owners corporation is slow to act on maintenance, attend meetings, review the records and raise the issue through the appropriate process. As an investor, you may not be involved in day-to-day building management, but you still share the financial consequences of the decisions made for the scheme.
When a large special levy arrives, first confirm the amount, due date and reason for the work. Ask whether the owners corporation offers an approved payment arrangement, then review available savings, offset funds or other financing options. Using additional capital can help with a short-term expense, but the full cost needs to be weighed against your property cash flow and other commitments.
How Can You Fund a Strata Special Levy Without Selling Your Investment Property?
A special levy can arrive when you had planned to use your savings for another purpose. Depending on the amount and deadline, you may be able to use a property cash reserve, accessible offset or redraw funds, or seek additional finance. Compare the total costs and what each option leaves you with after the payment is made. You can also read our guide to managing investment property cash flow.
Futurerent gives eligible property investors another way to access capital without refinancing their existing mortgage. Investors can cash out up to $100,000 per eligible investment property, subject to approval, with the agreed amount returned from a fixed portion of future rental income. A cash-out has an upfront setup cost and a fixed funding cost, and you receive less ongoing rent during the arrangement.
For a smaller special levy, the setup cost may represent a significant proportion of the amount required. It is worth comparing that cost with alternatives before proceeding. If you need to assess funding for broader property work, see our guide to funding property repairs and strata expenses.
Are Sinking Fund Levies Tax Deductible on an Investment Property?
The tax treatment depends on what the owners corporation is collecting the money for. The Australian Taxation Office explains that regular contributions to administrative funds or general-purpose sinking funds for ongoing administration and general maintenance may be deductible when incurred for an income-producing rental property. However, special levies raised for a particular capital improvement are generally not immediately deductible.
Some capital expenditure may qualify for capital works deductions once the relevant work is completed and the costs have been charged to the fund, subject to the applicable rules. Keep your levy notices and relevant strata records, and ask your accountant how the expenses should be treated for your property. For more detail, refer to the ATO's Rental properties guide.
Don’t Let Your Sinking Fund Sink Your Property Goals
For an investment apartment, the sinking fund is part of the property's financial health. A realistic maintenance plan and adequate contributions can help the owners corporation manage major work before it becomes an urgent financial problem. Reviewing these records before buying, and keeping an eye on them while you own the property, can help you plan for the true cost of holding it.
If a special levy has left you needing additional capital, take the time to understand the payment deadline and compare your options. Eligible investors can use Futurerent to access capital from their investment property without refinancing, although setup and funding costs and the impact on rental income should be considered. Use the Futurerent calculator to see your indicative cash-out amount, costs and ongoing rental cash flow.
FAQs
How much should a strata sinking fund have?
There is no single dollar amount that suits every building. The fund should be assessed against planned major works, the age and condition of the common property, expected costs and contributions. In NSW, the 10-year capital works plan is an important starting point, but you should also check the latest financial statements and recent meeting minutes.
Can a strata sinking fund run out of money?
Yes. Unplanned building problems, cost increases or inadequate contributions can leave the fund short of what is needed. The owners corporation may need to adjust budgets, defer non-urgent work where appropriate or raise a special levy.
What is the difference between a sinking fund and a special levy?
A sinking or capital works fund collects contributions over time for major common-property expenses. A special levy is an additional contribution approved through the scheme's applicable processes when more money is required for a particular expense.
Can I find out about special levies before buying an investment apartment?
You can ask your conveyancer or strata inspector to review the relevant records, including meeting minutes, financial statements, budgets and maintenance plans. These may reveal levies already approved or major works under discussion. They cannot guarantee there will be no future unexpected expenses.
Can I use Futurerent to pay a strata special levy?
Yes, subject to eligibility. Eligible Australian investment property owners can use a Futurerent cash-out for a strata levy without refinancing. Check the upfront setup cost, total fixed funding cost and how much rent you will continue receiving during the agreement before deciding whether it suits your situation.
