HOA Investing [Home Owner's Association]

[c078342]

I'm the treasurer of a small HOA comprising 30 stand-alone houses that have a market value of around $500k. No clubhouse, pool etc. We plow the streets, mow the grass and tend the landscaping in front of the houses. We need to accumulate a fund for replacement of roofs beginning about 22 or so years from now. This is an expense that can be easily managed, but our quandary is where to invest the funds. We currently have about $60k in a savings account earning next to nothing. I'm thinking about an intermediate term Treasury bond mutual fund. Any thoughts, experiences or suggestions would be appreciated.

[Kosmo]

A bond fund is suitable. I'd err on the shorter side rather than longer, even though you'll be adding money before withdrawing any most likely. Keep it simple so you can explain it to everyone.

Side question: is it common in your area that the HOA is responsible for roofs and landscaping on the private property of stand alone homes? I've never heard of that. That model only exists around here in some townhouse and condo communities, but not all.

[Dimitri]

I would first check your state statutes to see if there are any restrictions (or consult with your Association's counsel as they should be familiar with this). For example, this is what would apply in Nevada.

NRS 116.311395  Funds of association to be deposited or invested at certain financial institutions.
1.  Except as otherwise provided in subsection 2, an association, a member of the executive board, or a community manager shall deposit or invest all funds of the association at a financial institution which:
(a) Is located in this State;
(b) Is qualified to conduct business in this State; or
(c) Has consented to be subject to the jurisdiction, including the power to subpoena, of the courts of this State and the Division.
2.  Except as otherwise provided by the governing documents, in addition to the requirements of subsection 1, an association shall deposit, maintain and invest all funds of the association:
(a) In a financial institution whose accounts are insured by the Federal Deposit Insurance Corporation, the National Credit Union Share Insurance Fund or the Securities Investor Protection Corporation;
(b) With a private insurer approved pursuant to NRS 678.755; or
(c) In a government security backed by the full faith and credit of the Government of the United States.
3.  The Commission shall adopt regulations prescribing the contents of the declaration to be executed and signed by a financial institution located outside of this State to submit to consent to the jurisdiction of the courts of this State and the Division.
(Added to NRS by 2009, 1733)
http://www.leg.state.nv.us/nrs/nrs-116.html

Next, check your CC&Rs to see if there are any restrictions.

After that, if you have the all clear, have at it. Naturally, keep the Prudent Man Rule in mind -- "to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested."
https://en.wikipedia.org/wiki/Prudent_man_rule

[BigSaver]

How about a high-yield savings account like the one offered by American Express Federal Savings Bank? It currently earns 0.9% APY, which is better than most short-term CDs. FDIC insurance applies to individual & joint accounts; Don't know how FDIC applies to business accounts.

[dm200]

1. As stated, be 100% sure to stay within all the rules.
2. For this stated purpose, I would stay away from any bond mutual fund, except perhaps a Money Market Funds to facilitate purchasing brokered CDs. Bond mutual funds can lose money and you could come under (perhaps severe) criticism (even if unjustified) if you record a loss - even if the loss is small or very small.
3. I would go with FDIC or NCUA backed savings account and FDIC or NCUA backed CDs or certificates.
4. For a business or organization, there is no way to increase the $250,000 maximum federal insurance (FDIC or NCUA) from one federally insured bank or credit union.

[dm200]

How about a high-yield savings account like the one offered by American Express Federal Savings Bank? It currently earns 0.9% APY, which is better than most short-term CDs. FDIC insurance applies to individual & joint accounts; Don't know how FDIC applies to business accounts.

I don't know any specifics on this specific account or bank, but it is often the case that high yielding savings accounts are not offered to organizations - only to people.

[stan1]

I serve on a HOA board. I wouldn't under any circumstances vote to invest the reserve fund (which is over $400K for a 60 unit complex) in any way that could lose value. Not worth the personal risk (whether real or perceived by others). Also may not be allowed by your state.

[Steelersfan]

I'm treasurer of our condo and explored getting a better return on our $100,000 reserve fund. It didn't take long to decide that a savings account was what made the most sense - it's prudent and safe.

[BigSaver]

I don't know any specifics on this specific account or bank, but it is often the case that high yielding savings accounts are not offered to organizations - only to people.

Here is a link to get more information on this bank & account. It is up to the OP to check it out & determine whether business accounts are allowed.

https://personalsavings.americanexpress.com

[stan1]

I don't know any specifics on this specific account or bank, but it is often the case that high yielding savings accounts are not offered to organizations - only to people.

Here is a link to get more information on this bank & account. It is up to the OP to check it out & determine whether business accounts are allowed.

https://personalsavings.americanexpress.com

I'll help out: the FAQ says business accounts are not allowed.

[betterfinances]

Oh, this is a sore point with me.

A lot of HOA money is in reserve and not expected to be used for some time, oftentimes 20 years.

Investing in a higher risk asset combination that would be appropriate for a 20 year horizon would be highly appropriate for the money. Yet this never happens because of people's fear that the HOA might lose money. So the money oftentimes gets kept in a vehicle that offers low or no returns.

I will say that if the stock market is lower 20 years from now than it is today, there is a real problem that is much larger than the HOA.

But that is the way it goes to be an HOA.

[LadyGeek]

This thread is now in the Personal Finance (Not Investing) forum (HOA decision). I also retitled the thread to help with the acronym.

I'm the treasurer of a small HOA comprising 30 stand-alone houses that have a market value of around $500k.

...I'm thinking about an intermediate term Treasury bond mutual fund. Any thoughts, experiences or suggestions would be appreciated.

This forum is focused on personal investments - meaning directly benefiting you or a family member. While the OP will benefit from this discussion, the circumstances involve the HOA in its entirety.

Does the OP make this decision on his/her own, or are others involved? What level of risk is acceptable? There are also legal issues to consider.

Please see the disclaimer at the bottom of every forum page:

No guarantees are made as to the accuracy of the information on this site or the appropriateness of any advice to your particular situation.

[LadyGeek]

A member has flagged my attention (reported the post using the "!" in the top right corner). To paraphrase the comment:

- This discussion is about corporate finance, (the Homeowners' Association), not personal finance, and is therefore outside of the scope of Bogleheads. There are many rules and limitations on corporate finance that may make advice presented here inappropriate for HOA finance.

Rather than give the wrong advice, let's call this thread done. This thread is locked to avoid possible misinformation.