Maintain, protect, and enhance. That is the mantra of every well-meaning community association director in the country. Following the association’s rules and regulations, interpreting the covenant, practicing proper governance and more require dedication and commitment to best practices for community governance. What about best practices for the cash that the association has collected to protect itself from all of the expenses, known and unknown, which the association must bear? Following best practices in cash management is a challenge that even savvy volunteer leaders often leave to investment professionals to handle and for good reason.
Before banks, anyone who amassed a large sum of money was tempted to bury it in their backyard or sleep with it under their mattress. That strategy won’t work for your community association’s funds. In fact, a well-managed cash management program can actually help defray inflation and future expenses by allowing the association’s money to make money through proper investment. That’s where the skill and experience of an investment professional can help.
If you haven’t already done so, it is a good idea to search for an expert to help you navigate these financially tricky waters. For smaller associations with smaller amount of cash on hand and in reserve, it may be their local banker. For larger associations who may amass millions of dollars in reserves, it may mean working with a larger financial services firm who has a proven track record working with such substantial amounts of money and homeowners associations. Either way, there are some key considerations to take into account before investing the association’s money.
The financial institution that you work with should understand the needs of your community association. Condominiums and Homeowners Associations function closely to municipalities and often have the same needs. Instead of local taxes, they collect common fees. Instead of emergency services, they provide landscaping, insurances, common element maintenance, and such. They are typically not-for-profit corporations and typically behave as conservatively as possible from an investment standpoint.
Of course, security is paramount these days. You want assurance that the money is safe and cannot be easily stolen. Also, you want to know that there is insurance in place to protect the investment. If the amount becomes too large to insure, there are programs that help spread the risk and offer the highest level of protection possible. Ask your financial institution for the details on their security programs, especially if large sums of cash are involved.
FDIC coverage is important for Certificates of Deposit (CDs). These certificates generally assure a rate of return in excess of what a standard savings account would offer. Of course, there are rules and requirements to obtaining CDs but many associations find that CDs suit their needs just fine.
Higher rates of return are often available but they generally require higher rates of risk. Association Reserve Funds are not commonly subjected to risk as the monies collected represent common fee contributions by owners. However, if conservative investments in government bonds or similar low-risk derivatives are available, it is possible to invest some of the cash into low-risk investments that will yield higher returns. The potential return must be weighed against the risk before any association funds are invested.
The bottom line is that the association’s funds are its lifeblood. It must be treated with great conservation but must also be allowed to work for the association. A solid cash management program can accomplish both and bring a reasonable return to association members. Your condominium or HOA may also need funds in addition to what they already have on hand for capital improvement projects. HOALendingXchange can help! Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.