Reserve Studies: Preparing for the Inevitable Maturation of Building Components

https://www.hoalendingxchange.comSome things just get better with age. Wine or cheese, for example, may actually improve as they get older. The same cannot be said for the common elements of a condominium or community association. From the moment the first unit is built, the battle to maintain, protect, and enhance the building components begins. A well thought out Reserve Study is the proper guide to win this war. It can be the difference between success and failure in the struggle to keep the community’s common elements in great shape as it battles the process of maturation of the building components. HOALendingXchange always recommends association’s keep their Reserve Study current and active.

One way to assure that your community association is properly prepared is to hire a Reserve Specialist to review or prepare your community’s Reserve Study. Reserve Specialists have a unique set of skills that combine engineering (typically construction management, architecture, or civil) with financial planning. This allows them to not only summarize a community association’s current state of affairs but to also offer advice on how best to plan and save for future projects. While no Reserve Specialist can guarantee your community’s success by following the Reserve Study guidelines, it is far more likely that your community will thrive under its guidance.

Speak with a qualified Reserve Engineer. The Community Associations Institute (CAI) offers the Reserve Specialist (RS) designation to qualified professionals who have prepared at least 30 Reserve Studies within the past 3 years. They require the RS candidate to hold a bachelor’s degree in construction management, architecture, or engineering (or equivalent experience and education). Some states actually require common interest communities to conduct proper Reserve Studies and to adhere to their guidance in developing common fee schedules and contributions to the Reserve Fund. Finally, designated Reserve Specialists must adhere to the Professional Reserve Specialist Code of Ethics.

Reserve Studies cannot completely predict when building components will fail but they can provide solid financial advice on how those components can be paid for once they fail within a specified timeframe. Just as insurance is there in case Mother Nature deals your community a blow, a Reserve Study will help you prepare for Father Time’s visit. It is not a question as to “if” but rather “when” with regards to repair and replacement of building components in your community association. Without a Reserve Study, your community is relying on luck and gut feel of the Board to make financial decisions that will have a major impact on all members of the association. If your community association doesn’t have a proper Reserve Study, there is no better time to start one than now. And if your community association finds itself in need of an HOA loan to pay for revitalization or replacement of aging common elements, we’ve made it easy to seek the funds for the project. Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

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Borrowing Is an Option for Home Owners Associations

https://www.hoalendingxchange.comArriving just in time for your aging common interest community is a fairly new option for condominium, cooperative, and timeshare boards – an option sure to smooth those riotous owners’ meetings. It is another arrow in your quiver to solve those nagging maintenance problems that just seem to come out of the woodwork (or are caused by it).

Whoops, we need a special assessment on top of the monthly assessment increase you just approved three months ago! So, who could know that a sinkhole would form in the parking lot?

The option that more and more condominiums are discovering is the bank loan. This option is arriving on the condominium scene all across the country as more and more properties are facing the problems of aging. Many condominiums were built in the mid- to late- 1970s, making them 30+ years old. It is well past time for things to go bad. Or, framing the problem in terms of technology improvements and desires for aesthetic changes, there is a need for upgrades.

Another group of complexes that have a lot of work to do are those built in the mid- ‘80s. Unfortunately, it is not unusual for this group to suffer from poor workmanship or low-quality materials. These weaknesses are now resulting in premature problems.

Typically, condominium associations have been left to their own resources to support the cost of the repairs that are needed. The results have not been particularly favorable. The cost impact of these projects makes residents shudder. Often, the projects compound on top of themselves with the result being maintenance imprudently deferred.

One way out of this dilemma is planning properly for failing components and financing the current project(s) with a loan sought through HOALendingXchange to smooth the impact on unit owners. By utilizing a loan, the cost of the project is spread over several years instead of a few months and most owners will appreciate this approach.

There is a third group of associations that can benefit from financing through HOALendingXchange.  These are complexes that are subject to land leases. These associations can purchase the lease and pay off the obligation long before the lease would ever mature in order to potentially save a large sum of money! Perhaps there is a need to purchase adjacent land as a buffer from undesirable development or to acquire a parcel that has been accessible only by easement. Of course, facility additions like building a clubhouse, pool, tennis court, etc., also make sense to finance.

Now, how do you find a bank that can provide the financing?  Financing for condominium associations is relatively new. Changes in state statutes across the country have made this industry a viable and safe place for bank financing. However, most banks have little experience with this industry. The first chore is to find a financial partner that is comfortable and skilled with financing a condominium association. HOALendingXchange is the logical choice to find financing as matching borrowers and lenders at HOAs, condominiums, cooperatives, timeshares and other common interest communities is our only business. Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

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How Does Your Timeshare Association Qualify For a Loan?

https://www.hoalendingxchange.comAt HOALendingXchange.com, we endeavor to make the timeshare loan process as simple as possible. Our greatest focus will be on determining if your timeshare complex is managed well. We also will be looking for stability and consistent cash flow, and whether or not the loan could be repaid without straining the capacity of the association through its owners.

Our inquiry process requires submitting project information, details about the association (including a financial history), and a plan on how the loan will be repaid. You also will need to provide current year budgets with year-to-date actual results. Data on the aging of assessments is critical, as is the balance of unsold inventory and the velocity of inventory turnover.

A budget proposal reflecting the routine needs of the community for operating costs and regular maintenance with the added level of proposed debt service is necessary. Pay close attention to the collection record of your assessments. If these charges show an inappropriate number of delinquent intervals or frequent charge-offs, this is a red flag. The delinquency level that we are looking for is only of the interval or club owner paying the association’s assessments and other charges, not in the mortgages of owners to their creditor. The inventory of unsold intervals is of interest because it may suggest the level of marketability of the resort and therefore the stability of the cash flow. A professional life cycle analysis of common elements has hopefully been prepared and its recommendations implemented. Insurance coverage is also an important matter. The bank will be looking at your policy to determine if there is prudent coverage of risks, especially in storm-prone areas.

The structure of the timeshare loan is important. Keep in mind that your project costs will most likely increase. Keep the term of the loan as short as possible – most loans are typically between seven and ten years. Most importantly, it is likely that you will have to increase the budget to support the debt servicing need. Recognize that the complex is continuing to age and other extensive projects will always need to be addressed. The association board would be wise to have paid off this debt before the next large project appears. Otherwise, the new assessment cost will compound on top of what you’ve already financed. This situation is not just straining, it will cause high assessments that depress your property values.

Visit HOALendingXchange.com today. Simply fill out our inquiry form and our skilled lenders can structure a productive package for your association in conjunction with the rest of your professional team. The process may seem complicated, but it’s a good option for your association for necessary upgrades and future growth. 

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New Funding Resource for Timeshare Renovations & Upgrades

https://www.hoalendingxchange.comThe competition for consumer disposable dollars in today’s economy is tough. People of all economic levels are being dramatically affected by declining real estate values along with increasing food and energy costs. The vacation product you are presenting to the market, therefore, needs to have excellent value, making it a cost-effective, satisfying choice for the timeshare owner. Keeping the resort looking fresh and new is of key importance.

With the rapidly increasing costs of construction, a loan for a project that you finance now (versus piece meal over an extended period) could help mitigate those cost increases and will improve the curb appeal now. HOALendingXchange.com works directly with lenders that have loan funds available for refurbishments/upgrades and new facilities (a clubhouse, pool, tennis court, etc.). Often associations want to purchase adjacent land to prevent unwanted development or to acquire a parcel that has been accessible only by easement. We can help.

Non-Real Estate based bank loans for timeshare associations have increased in popularity in recent years, as resorts built in the mid- to late-80s and 90s are starting to age significantly. The concept has been available to the residential community association industry for more than 20 years. The loan only uses the association’s cash flow as the basis for the loan along with an assignment of assessment rights as collateral. Many timeshare associations haven’t accumulated reserves based on a properly done and frequently updated reserve study, so they typically require a special assessment. Given the current economic climate, special assessments are falling ever further out of favor with interval owners. Associations that are subject to land leases or for amenities can also benefit from loan financing with the buyout of the lease. It is a particularly active transaction in Hawaii. These associations can purchase the lease and pay off the obligation long before the lease would ever mature.

Financing for timeshare associations is relatively new and must abide by laws each state sets out in a Common Interest Ownership Act or other industry specific regulations. The first thing that you may wish to do is contact the association’s counsel to determine if there are any legal obstacles. Associations may need to update their declarations if they don’t have a legal capability to borrow or assign their common charge assessments as loan collateral. Each set of declarations includes unique steps that empower the Board to enter into a financing agreement and encumber the assessment rights. It’s important to understand the details of the process and what will be required, so you avoid any surprises or delays in later stages.

Visit HOALendingXchange.com today. Many banks have little experience with financing for timeshare resort associations. Our application process is simple and straightforward. Simply fill out our inquiry form today and start your renovation or upgrade project tomorrow.

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Lending to Condominium Associations

https://www.hoalendingxchange.comLending to a condominium association is not unlike lending to a municipality. No loan losses from condominium associations have been reported by those banks with the most lending experience, most notably in Florida and California. There are special considerations when lending to a condominium association, several of which are discussed in this article.

Common Interest Realty Associations (routinely referred to as CIRAs) are legal entities formed from the organization of real estate property owners, generally as non-profit stock corporations. They proliferated in the 1960’s when condominiums became the most common form. This concept evolved into other forms of CIRA structures, including cooperatives, home owner associations (HOAs), and time shares. HOALendingXchange.com services all of these types of CIRAs.

Items that can be funded are diverse. The unifying issue is that the funding be project-specific. Typical funding projects are such items as roof replacement, conversion to vinyl siding, driveway resurfacing, and central mechanical system upgrades. Associations have sought funding for expanding recreational facilities and purchasing adjacent land as a buffer for easement controls.

Whatever your financing needs are, you can be certain that a lender at HOALendingXchange.com has experience in your area of need. Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

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HOA Loan Structures & Long Term Budget Shortfalls

https://www.hoalendingxchange.comHOALendingXchange.com has made financing for community association capital maintenance needs easily accessible.  Financial institutions that are truly skilled in serving this unique industry can be particularly flexible to the differing needs of each community. Not only does each association have a unique culture but the projects all need to be approached in a tailor-made fashion to suit what they desire to have accomplished.  The financing available is typically low cost because the transactions are acknowledged to be of low risk and the associations often provide the institutions with deposits that allow for buying down the interest rate or loan fees.

The one aspect that permeates the vast majority of all communities is the handling of financial affairs.  However, a very important responsibility has been broken in most communities. I know this to be true by virtue of years of experience as a lender financing communities throughout the country and my involvement with the Community Association’s Institute.  As well, interacting with professional Reserve Study professionals that reflect most associations are typically not more than 20% funded. That is to say that Reserve Studies indicate that a certain level of reserves is needed to support expired common elements but only 20% of that specified funding level has actually been accumulated.

The reason is also very consistent. No one wants to spend any money. A culture of “keep monthly association fees minimal” exists almost universally. Now, I am not a spendthrift. But, I have witnessed nothing but adverse effects to this “ostrich head in the sand” mentality. The reality is simply this: a community association regardless of size is a very complicated miniature town. The buildings and infrastructure are a sophisticated system of structural materials that are constantly in a state of deterioration and components are becoming obsolete.

Because of the desire to keep the annual budget low for the sheer sake of it, there is typically a huge cost impact put upon the unit owners when a project needs to be addressed. Because of the prevalent under-funding issue, the cost has typically been accomplished via large special assessments.  The availability of obtaining an association loan has smoothed the impact. Get started with your own HOA loan by simply filling out the HOALendingXchange inquiry form and HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

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Is Condominium Association Financing Right For Your Homeowners Association?

https://www.hoalendingxchange.comIn recent years, many Condominium and Homeowner Associations have turned to financial institutions for loans to fulfill their duties to protect, enhance, and maintain their association’s common assets. The challenges faced by these associations is that many traditional banking institutions are not currently equipped to sell and service this specialized loan or line of credit request. Further, some Condominium and Homeowner Associations have found that their governing documents may prevent them from obtaining the simple financing they need.

To determine if Condominium and Homeowner Association Financing is right for you, you must first make sure that you have removed the barriers to successful loan negotiations with your lender. HOALendingXchange’s Condominium and Homeowner Association lending professionals are ready to talk with you about your Condominium and Homeowner Association Financing needs. Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

Talking to the right lending professional makes all the difference in the world! Our HOA lending professionals handle nothing but Condominium and Homeowner Association loans. You can rest assured that your inquiry will be treated politely and professionally by a knowledgeable expert who will efficiently assist you in turning your loan request into the needed capital for your association project.

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A Loan for your Community Association – Some Real World Mechanics

https://www.hoalendingxchange.comAs we head into budget season it is time to think about where all the money for all of the maintenance and capital improvements is going to come from. A primary activity of operating a community association is planning for the repair and maintenance of the property and budgeting for those large cost capital improvements that will be demanded.

I am a major proponent of having a Reserve Study performed and updated at least every 3 years. I further believe that community associations should be required by regulation to properly fund themselves based on that Reserve Study. Of course, that is a utopian concept that rarely exists in the real world. The fact that so many community associations have not properly saved for the major capital improvement projects their communities need has actually created my career. The lack of sufficient reserves to fund capital maintenance projects has created a demand for community association lending. I have been providing community association loan products at a national level for almost 20 years, I have taught numerous banks how to build successful community association lending programs. I offer the following dialog to provide guidance to borrowers when it comes to getting the best deal from those banks that profess to be desirous of your business.

Here is a proven banking fact about the community association lending industry. Community Association lending is one of the safest asset classes a bank can loan to. Such loans rarely, if ever, become a problem. This fact has resulted in many banks entering the market over the past 10 years. It is easier than ever to find a bank that is active in community association lending. Just reference the vendor directories of your local chapter of CAI, ACTHA, FCAP or CACM. It is equally easy to get multiple banks to compete for your business. That competition will result in a competitive cost financing product for your community.

However, as is often the case, the devil is in the details. The devil in this case, so to speak, is the current state of commercial banking. The post-recession banking environment has left banks emotionally shell shocked and massively over regulated. The most influential departments in a bank these days are the Regulatory Compliance and Internal Audit Departments. That information is important to you because there is no longer such a thing as having a bank “relationship” which suggests understanding, trust and human compassion.

The reality is that the very nice person who comes to give you a sales pitch, brings cookies into the office, buys you drinks after an educational seminar, takes you out for golf, and so on is not the decision maker when it comes to approving your community association loan. That person has absolutely no power, no authority and only nominal influence over whether or not your loan is approved or over the terms and conditions of that loan. The back room of a bank, operating under tight FDIC regulatory controls and review, approves and structures loans without emotion or sense of “relationship”. It is a purely mechanical process based on the bank’s loan policy and staff skills. The point being is that it is a good idea to negotiate with multiple banks. Be firm with the lenders you do pursue and do not waste time with banks that you feel are being impractical.

To make a case of why your association qualifies for a loan, you need to have performed some due diligence. Know the projects that you want to have funded and get multiple bids. You are not going to get very far with any bank if you do not have a defensible perspective on what the project is going to cost. If the project is going to require a Special Assessment or increase in the Budget, be able to show the bank a communication stream that validates the unit owners are aware of the coming financial impact. Be prepared to communicate to the bank the additional future capital maintenance projects that might need to be addressed during the loan term. A bank is going to want to know that you are aware of the condition of the property and are prepared to support funding those future projects. These are the core talking points to be able build confidence with the bank’s credit analyst.

Supporting material for a complete loan application will be 2+ years of financial statements, the year-to-date financial statements and the current year budget. A clear report that reflects the age of delinquent unit owner accounts is crucial. A document that shows the number of units rented in the community is important. Beyond these core items, different banks will ask for other types of readily available information.

A unique difficulty has developed in the loan approval process which is a function of banker stress during the recession and currently existing unskilled credit underwriters. Some banks are measuring the ratio of the loan amount to the average retail value of the units. Banks have set arbitrary limits of 10% to 15%. There is no valid basis for this credit approval metric as there are no community association loans that have become troublesome while a high ratio existed. None the less, before you spend much time with a bank, you should come to appreciate their stance on this matter because it may cap your level of access to the funds needed.

In summation, the good news is that bank financing of community association financing is readily available. The challenging aspect is that banks are going to require well-considered financial plans for getting a project done and for the success of accomplishing future projects.

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Should a Community Association Borrow Money?

https://www.hoalendingxchange.comThis commentary is colored by the horrible debt-induced recession that we have gone through. The recession was the worst and the longest since the Great Depression. Interestingly, both traumatic periods were sparked and exacerbated by speculation and over-leveraging (debt). Debt is a real easy way to get to live beyond your means. Debt leaves you vastly more exposed to financial instability because a cash flow disruption may cause an inability to satisfy a scheduled debt payment requirement and result in loan default. Debt is also an expensive way to acquire anything. But, a well-considered loan can be a valuable tool if there are no other alternatives to solving an immediate necessity.

Most community association or HOA loan requests are to support the need to make upgrades or improvements to common elements. The most common requests are for replacement of roofs, siding, windows and doors. But, a proper starting place is to be building reserves. It is far smarter to have a reserve study, review it annually, and fund it as recommended which develops large cash balances that are earning interest. You are in a much smarter position to earn interest income and perhaps pay taxes on that interest income versus borrowing money and paying interest.

There is also a certain fairness to building reserves. Every day, all the common elements wear out by some small but measurable amount as defined in a reserve study. The person that owns a unit/lot for a time period has the benefit daily of the common elements that are wearing out. That unit/homeowner should be paying in their fair share of the use of those common elements on a regular basis for the period they are members of the association. A portion of the routine common charges payable to the association by each and every unit/lot owner should be their proportionate share of the amount needed to support building reserves per the recommendation of the reserve study.

Sadly, the idea of building reserves is a well-studied, prudent and easy to follow methodology that is not commonly followed. The result is an underfunded association with common elements in various stages of disrepair and obsolescence. As worn out common elements must be corrected, the solutions are narrowed to be special assessments and borrowing. A special assessment is a uniquely unfair solution because it requires the unfortunate soul that “currently” owns in the association to pay, in full, for the replacement of a common element that has been utilized by the owners of the past 20 years. The unit owner subjected to a special assessment is that unfortunate person that is in the wrong place at the wrong time. A special assessment is also painful. Essentially, a lump sum special assessment will require that unit owner to provide some large dollar amount to be paid into the association over some short period of time so the association can engage in the project at hand.

The last alternative is for the association to obtain financing. There are many skilled banks that understand the nuances of lending to a community association. To get the best terms and conditions for such a loan it is recommended that a CAI member bank be approached. These are banks that have stepped forward and committed themselves to this industry. Banks that do not have the background in community association loans are going to be more challenging to negotiate with and you might find yourself needing to educate the institution. Loans to community associations have proved to be the safest market that a bank could ever lend to. Consequently, banks that have experience with them will be providing very good loan rates with nominal fees. The borrowing terms will be flexible. The length of a loan term available is typically up to 10 years and sometimes 15 year transactions are possible. You should never enter into a loan with a prepayment penalty as these loans are most often prepaid. Banks are very willing to fix the interest rate for as long as 5 years and sometimes 10 years. Stay away from concepts like “yield maintenance fee” and SWAP rate loan pricing. These are esoteric loan pricing concepts that can look inexpensive initially but by the end of the transaction can have the association paying the bank a financing premium. These Banks should never be requiring your cash balances as collateral. You need to have access to your liquidity. The bank’s collateral is normally an Assignment of the Association’s Right to Collect Assessments. Community associations are not engaging in real estate improvement activities as much as it might appear so. The funds being provided are for replacement of reserve funds. Any bank that wants to handle the disbursement of funds as if this were a real estate development project by requiring site inspection and lien waivers does not know what they are doing. It is a bank you need to avoid. The disbursement of funds should be handled essentially as an open line of credit for the association to draw on upon request. A typical loan structure is for the loan to be a line of credit with a term that matches the build out period of the project the association is engaged in. The line is then automatically structured to convert to an amortizing loan that pays off in full, principal and interest, over a period of time such as 10 years.

There are loan structures to avoid. They promote irresponsibility or can result in the association paying far too much in interest or can create a repayment trap. An association should never enter into a loan structure that has a balloon payment. Such a structure is alluring because it keeps payments low but it results in a large lump sum payment to be paid at a point far into the future. All this has done is gotten current unit/lot owners out of paying for the obligation and dump the burden onto future owners. Then, there is the question of where the money is going to come from. Chances are that reserves will not be available. That leaves a special assessment on the unit/lot owners in the future, or, refinancing the large remaining principal balance that causes a much larger overall interest expense to the association than if the loan had been paid over a normal amortization schedule.

The idea of a long term bond has been floated. This is just another balloon payment concept. The inappropriate over-riding enticement is for a loan payment to be a low as possible. But like any balloon payment model, the unit/lot owners in the future pay off the loan and not the people that are benefitting from the capital improvements financed. As well, the overall interest cost of the transaction will be a lot more regardless of the stated rate being lower.

The other poor loan structure for a community association is a revolving line of credit. Essentially, a large MasterCard that the association can use at will. Association loans should only be for specific projects. Keeping in mind that the Board in power today that thinks a credit line is a good idea might not be the same Board in power in a couple years. Like any credit card, what tends to happen is that it is used for inappropriate purposes over time and the principal balance is likely never paid off resulting in the association wasting money on interest expense.

Here is a thought to consider when negotiating the interest rate on a loan. Some banks will fix the interest rate for 10 years but the rate will be much higher than a loan that is only fixed for 5 year increments of a 10 year fully amortizing loan. Typically, community association loans have an actual life of 6 years on average even though they were initially set up for longer payoff terms. Associations prepay such loans for a variety of reasons. If it seems possible that your association will be paying off the loan near the 5 year interest rate locked period, it might be a lot cheaper to take the 5 year adjustable rate than the 10 year fixed rate. If you are like the average association that pays off in 6 years, the 6th year might experience an interest rate increase, but it will be for only one year and on a much reduced principal balance due to all the earlier prepayments. This would be a lot less expensive than having the whole amount borrower paying the 10 year fixed rate for those full 6 years.

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It’s Time to Start Thinking About the Annual Budget

https://www.hoalendingxchange.comEgad! The year is more than half over! Most of us haven’t even enjoyed our summer vacations yet. I know I have not yet gotten my summer tan to where I want it to be. Most HOAs are just hitting their financial stride this year. And yet, time marches on and budget planning season is upon us. HOA Boards of Directors need to be anticipating the challenge of successful budget preparation because it is going to be a hard budget to properly evolve. My advice is to start the planning, debating, and negotiating now. The pressures of this budget are likely to be unlike any you’ve seen before.

A perfect financial storm brewing has been brewing for some time now. As a generality, the financial woes of our nation really became noticeable in July of 2007. It’s already been years of broad-based economic stress. In my experience of dealing with the financial condition of all sorts of community associations across the country, I have noted a general progression of decisions that have been consistent since July, 2007.

When the 2008 budgets were being plotted, many associations decided to hold their budget level to the prior year. That meant deferring projects that they would have liked to do but felt that holding off one more year would be prudent. As 2008 progressed, layoffs began, financial alarm bells went off, and then came the September “near collapse” of the American financial system. The general response to these traumas was the cancellation of proposed maintenance projects and, in very many cases, operating budgets were cut back. Draconian cost control was the over-riding concern.

Through 2009, many associations experienced operating deficits as delinquencies exploded with real operating costs outpacing what was budgeted. 2010 budgets were constructed with little interest in performing maintenance work on the properties as Boards looked to further cut operating costs.

This trend has continued. Looking at current budget and operating expenses that continue to increase. Many associations are still running real operating deficits from prior year(s) because the “balanced budget” approved for the current year was truly impractical given the fact that true market-driven operating costs are higher. I have watched reserve accounts continually being depleted over the past two years to keep the associations afloat. The limit to these “extreme measures” in budgeting seems to have reached its conclusion.

Operating budgets cannot go into a third year of increasing deficits as costs continue to increase. Deferred maintenance that needed to be addressed in 2007/2008 has been stretched beyond its limit of practicality. By all appearances, community associations are likely and largely about to go into a 3 to 5 year period of strongly increasing budgets or strenuous special assessments.

Prudence would suggest that a responsible Board step forward early to be prepared to propose the budget increases that will be needed. Recognize what the real costs will be for the coming year and plan for those cost increases. For instance, due to world economic pressures, it is likely that oil prices will rise dramatically in the very near term. What will that do to your utility costs? The investment portfolios of insurance companies are stressed. To restore their needed reserve balances, insurance companies are likely to increase premiums. Local and state property taxes will be increasing dramatically in order to halt municipal budget deficits. That will squeeze the profits of vendors so they will need to increase their prices to associations to survive.

Deferred maintenance just cannot go on any longer for many of the common elements. It is becoming common circumstance that municipalities are fining and ordering associations to perform work within a time frame to satisfy life and safety issues. Since there was no money in the budget to repair the roof that was leaking in 2008, today, it is almost raining in the building. Clearly, building’s components need to be addressed and time has run out. The good news is that the cost of construction labor and materials in under control for the time being. The difficult news is that projects have a multi-thousand dollar impact on a per unit basis. Boards are going to have to plan for these projects to be done through combinations of using existing reserves, applying special assessments and seeking external financing.

The end result is that Boards will need to do good research on the line items in their budgets so they can have a real strong handle on what might occur throughout this upcoming year. Having individual line items becoming budget busters is just not going to be workable any longer. Boards need to get contractors to provide cost estimates right away so planning can be made on how these now unavoidable items can be paid for. Getting the new budget approved is going to be a major stress. Unit owners are still reeling from how the economy has affected them.

The best thing that the Board can do to get the new budget approved is to communicate early and communicate well. Present the case clearly with lots of detail. Bring in outside professionals to help explain the importance and benefits of proposed repairs, maintenance, and construction projects. Let the insurance agent explain why the insurance premium might be what is proposed and then show that you have shopped around. In demonstrating the need to get a capital maintenance project done, bring in a panel of experts to do a presentation to the unit owners:  engineer, contractor, financing representative.

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