Condo Assoc seeking thoughts

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c078342
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Condo Assoc seeking thoughts

Post by c078342 »

I'm the treasurer of a small (30 stand alone houses) condo association. The Assoc pays for lawn/snow maintenance, but not much more - otehr than roofs. The builders specs called out 35 year shingles -- first units were built in 2007 and the last 2 last year. So if we assume a 30-year lifetime, we need to start replacing the roofs in 2037. Our monthly dues are $225, raised from $200 in January. After immediate expenses, the remainder goes into a reserve fund for the roofs. right now we have about $85k in a savings account paying nothing. We are in the process of opening a Vanguard account with the intent of investing in short term and intermediate term Treasury instruments. If I project into the future (I'm a numbers guy who before retirement ran multi-million budgets), when we get to the point of paying for the new roofs, we'll have a bankroll of about $700k. On one level, I think this is a responsible position to not encumber future owners with levies. But, it is also alot of money sitting unused by the current and future users. I'd like to figure out some way to allow unit owners to use the fund while still preserving if for when needed. I said I'm a numbers guy, but I'm an engineer numbers guys who was running research programs. Anybody have any experience in solving his problem?
badger42
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Re: Condo Assoc seeking thoughts

Post by badger42 »

Does the association own exterior walls? Siding and paint will eventually need maintenance. Is there any other shared infrastructure? How bad is the difference between a 'normal' winter versus a 'really heavy' winter in terms of snow removal? Do you live somewhere subject to severe weather (hail, etc)? A "35-year" roof might only really last for 20 with the right weather.
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gunn_show
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Re: Condo Assoc seeking thoughts

Post by gunn_show »

badger42 wrote:Does the association own exterior walls? Siding and paint will eventually need maintenance. Is there any other shared infrastructure? How bad is the difference between a 'normal' winter versus a 'really heavy' winter in terms of snow removal? Do you live somewhere subject to severe weather (hail, etc)? A "35-year" roof might only really last for 20 with the right weather.
+1 need more details about the complex, what shared spaces and facilities there are, weather, etc.

must account for severe snow years where you may need daily snow removal for 6 months. that gets $$$

what happens when common area jacuzzi needs replacing or re-decking etc (example)

are fireplaces or exterior decks or walkways common areas? wood decks or 2nd story stairwells deteriorate and will need replacing eventually

all it takes is one bad year for reserve funds to get used up real quick
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Goal33
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Re: Condo Assoc seeking thoughts

Post by Goal33 »

My association was irresponsible with artificially low HOA. Now they're deciding between a 10k assessment or a 1.4 million dollar loan at 5% interest for 5 years. 140 units.
miamivice
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Re: Condo Assoc seeking thoughts

Post by miamivice »

What your association needs to do is have a reserve study done that will look at your future obligations, your revenue sources, and project whether your association is collecting more than enough, less than enough, or just the right amount in dues in order to pay the future expenses.

I would suspect there is a lot more than roofs. Typically condo HOAs (for stand alone units) pay the roof, exterior building maintenance, windows, parking lots, etc, etc, etc. But each one is different and none of us know what your HOA is on the hook for based on your CC&Rs. A reserve study accounts for all of those and recommends a level to set your dues at to avoid levies in the future.
Carefreeap
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Re: Condo Assoc seeking thoughts

Post by Carefreeap »

miamivice wrote:What your association needs to do is have a reserve study done that will look at your future obligations, your revenue sources, and project whether your association is collecting more than enough, less than enough, or just the right amount in dues in order to pay the future expenses.

I would suspect there is a lot more than roofs. Typically condo HOAs (for stand alone units) pay the roof, exterior building maintenance, windows, parking lots, etc, etc, etc. But each one is different and none of us know what your HOA is on the hook for based on your CC&Rs. A reserve study accounts for all of those and recommends a level to set your dues at to avoid levies in the future.
+1

And many States actually require the annual study and budget by law. You might think about consulting with an attorney that specializes in HOAs to give the HOA some guidance regarding legal requirements. As tempting as it is to invest more aggressively you may be precluded from doing so by law.

I own a condo in a small condo (49 units) complex. It was built back in 1959 and as an earlier poster remarked, the years of artificially low HOA dues has come home to roost. It's a wonderful complex in many ways but we are facing some major infrastructure failure. One of the smartest moves was to hire professional management as years of the DIY HOA management did not serve the complex well. A professional 3rd party can help mediate between neighbors and manage the personalities better.
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adamthesmythe
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Re: Condo Assoc seeking thoughts

Post by adamthesmythe »

> I'd like to figure out some way to allow unit owners to use the fund while still preserving if for when needed.

These are mutually exclusive goals.

You need to have a reserve study of some sort. There are companies that do this and they do not look only at the roofs, they predict the lifetime of all components the association maintains. Your assessments should be set based on the results of the reserve study.

You (meaning the association's officers) have a fiduciary responsibility to the owners. Funds should be invested primarily with preservation in mind. Treasuries are fine, CDs are defensible. Any sort of stocks probably are not.
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Kosmo
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Re: Condo Assoc seeking thoughts

Post by Kosmo »

Why is an HOA responsible for the roofs on stand alone houses? The individual owners should be responsible.

In the 2 HOAs that I've lived in, if a surplus was generated such that the reserve fund was accumulating thousands of dollars yearly, the directors would be voted out instantaneously.
TravelforFun
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Re: Condo Assoc seeking thoughts

Post by TravelforFun »

Making current owners pay for repairs down the road (2037) doesn't seem fair to me. What if some of them don't plan on staying there that long? My HOA has a reserve of 1 year of operating expenses but we only maintain the common-area landscape and the neighborhood perimeter wall.

I'd be interested to see what this forum comes up with.
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8foot7
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Re: Condo Assoc seeking thoughts

Post by 8foot7 »

TravelforFun wrote:Making current owners pay for repairs down the road (2037) doesn't seem fair to me. What if some of them don't plan on staying there that long? My HOA has a reserve of 1 year of operating expenses but we only maintain the common-area landscape and the neighborhood perimeter wall.

I'd be interested to see what this forum comes up with.
Making future owners pay for past insufficient savings (via interest on a loan or an assessment) doesn't seem fair either.
adamthesmythe
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Re: Condo Assoc seeking thoughts

Post by adamthesmythe »

Kosmo wrote:Why is an HOA responsible for the roofs on stand alone houses? The individual owners should be responsible.

In the 2 HOAs that I've lived in, if a surplus was generated such that the reserve fund was accumulating thousands of dollars yearly, the directors would be voted out instantaneously.
This is a strange comment. The HOA is responsible for whatever the documents say the HOA is responsible for. Townhouse communities where the HOA is responsible for all exterior maintenance are quite common. Maybe a bit less usual for standalone houses- but whatever the documents say goes.

> Making current owners pay for repairs down the road (2037) doesn't seem fair to me. What if some of them don't plan on staying there that long? My HOA has a reserve of 1 year of operating expenses but we only maintain the common-area landscape and the neighborhood perimeter wall.

One of the things prospective purchasers look at is reserves in relation to obligations. An association with low reserves would take a hit on resale values. You can pay one way or another but you will probably pay either way.
bberris
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Re: Condo Assoc seeking thoughts

Post by bberris »

TravelforFun wrote:Making current owners pay for repairs down the road (2037) doesn't seem fair to me. What if some of them don't plan on staying there that long? My HOA has a reserve of 1 year of operating expenses but we only maintain the common-area landscape and the neighborhood perimeter wall.

I'd be interested to see what this forum comes up with.
The current owners are living under the roofs that are depreciating. They need to pay that cost.
student
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Re: Condo Assoc seeking thoughts

Post by student »

Regarding whether it is fair for current owners paying for cost down the road, I think it is a wash. If you sell in 20 years, surely the buyer will check the roof. You can then point to the reserve for the cost of a new roof. In other words, it will be accounted for in the selling price.
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midareff
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Re: Condo Assoc seeking thoughts

Post by midareff »

Everything that has a periodic wear out or replacement schedule should be on a replacement reserve. Roofs, exteriors if common property, parking areas and drives if common, etc.
an_asker
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Re: Condo Assoc seeking thoughts

Post by an_asker »

I'm on our condo board. We have our reserves in CDs. Per my understanding, we're supposed to be as conservative as possible with these moneys.

The reserve money is for the specific purpose it is saved for. We have ongoing Reserve Analysis performed by an outside firm (once every few years).
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Kosmo
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Re: Condo Assoc seeking thoughts

Post by Kosmo »

adamthesmythe wrote:
Kosmo wrote:Why is an HOA responsible for the roofs on stand alone houses? The individual owners should be responsible.

In the 2 HOAs that I've lived in, if a surplus was generated such that the reserve fund was accumulating thousands of dollars yearly, the directors would be voted out instantaneously.
This is a strange comment. The HOA is responsible for whatever the documents say the HOA is responsible for. Townhouse communities where the HOA is responsible for all exterior maintenance are quite common. Maybe a bit less usual for standalone houses- but whatever the documents say goes.
I get that the HOA is responsible for what the documents say it is responsible for. Let me rephrase the question: Why do the documents say the HOA is responsible for roofs? This is very different than being responsible for the entire exterior. What benefit does it bring? Do the houses cost less because the owner of the house only owns 1/30th of the roof? What happens if the roof leaks and needs to be repaired, but not entirely replaced? Who bears that cost? Who's insurance covers the roof, the owner's or the HOA's? If a hail storm hits and half the neighborhood needs to get new roofs covered by insurance (doesn't matter whose), what does the HOA do with the 50% excess it now has in the reserve fund? Seems like it creates more problems than it solves.

I've lived in a townhouse community and a stand alone house community, both with HOAs. In both cases the owner is entirely responsible for the interior and exterior of the structure. It makes for a very clear division of responsibility for maintenance/upkeep/repair.
BanditKing
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Re: Condo Assoc seeking thoughts

Post by BanditKing »

I'm the president (I got volunteered) of our very small condo association (only 11 townhomes) and we had to do an assessment last year for some repairs to our roof due to a faulty construction, the EIFS Siding, and to get our driveway patched. Up until that, the HOA fees were very low ($125 when I moved in two years ago, raised to $150 just after I moved in). Our units were all built in 2007 and unfortunately the builder is long defunct so we couldn't go after them for the roof issue.

Everyone's one-time assessment was $3200 or so, which was enough to cover the repairs plus a 20% contingency.

That said, recent sales of units have been hampered somewhat because we do not have an established repair reserve - the budget had always been operational in nature. To that end, we rolled the excess from the assessment over to a savings account and jacked everyone's dues by $100 for one year to add another $13k or so. I expect our dues to fall back to the $200 range for 2018. Hopefully that will address the lender concerns.

For the most part, the attitude of our association has been that they'd rather deal with assessments for larger ticket items as they come, than higher dues. Most everyone here are single occupants, or couples. There are no families since the units aren't very large and are on three floors. As a result, we get a good deal of turnover (average occupancy is around 3 1/2 years) and nobody really wants to pay for future repairs if they won't be here.
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c078342
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Re: Condo Assoc seeking thoughts

Post by c078342 »

Wow, received many more responses than I thought I would. We have a private road about 1/2 mile long. We are responsible for the exterior outside of the Tyvek, but not for features that extend through the Tyvek (e.g., windows and doors) Decks, walks, driveways are the responsibility of the owners. We are responsible for snow removal, lawn and some landscaping (that planted by the developer). We are in southern New England so snow removal is not a big item -- over the past years we have been billed maybe and additional $3-4k for heavy equipment to truck snow away. The Board consists of engineers (degreed), a doctor, and a lawyer. We revisit the reserve funding yearly and have determined that the 800 pound gorilla are the roofs. The rest can be and has been paid from cash flow. The owners are/were successful professionals and the units are sold in the $500-600k range. Turnover has been good.

I understand the comment about the fairness of current owners paying for future owners benefits. In theory, the unit owners share in the reserve fund should be priced into the unit's sale price. Is it?

I was just curios is anyone out there had had a similar experience and how they handled it. Thanks.
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Pajamas
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Re: Condo Assoc seeking thoughts

Post by Pajamas »

A well-run co-op or condo will have a professional assessment of the property and create a plan for major repairs and renovations on a regular basis (usually every five years) and adjust maintenance charges to avoid having to impose huge assessments when major work is needed. The money in the reserves is earmarked for those expenses and there is no practical way to allow the shareholders or owners the use of it. A financially sound association with adequate reserves has a positive affect on property or share value and poor finances will have the opposite affect. A lack of reserves will also affect the ability of owners to get a mortgage.

Some of the very expensive co-ops in NYC do NOT maintain reserves because their shareholders are very wealthy and must pay cash for their shares and then write a check for the full amount of their portion of even major repairs like a complete facade and roof replacement, but that does not sound like it would be applicable to your condo since the units are relatively inexpensive and you have a reserve fund.

So the right thing to do is to collect the funds required and hold them in an account or in instruments where the principal is not at risk and not worry about it.
Last edited by Pajamas on Wed May 31, 2017 9:06 pm, edited 1 time in total.
miamivice
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Re: Condo Assoc seeking thoughts

Post by miamivice »

c078342 wrote:Wow, received many more responses than I thought I would. We have a private road about 1/2 mile long. We are responsible for the exterior outside of the Tyvek, but not for features that extend through the Tyvek (e.g., windows and doors) Decks, walks, driveways are the responsibility of the owners. We are responsible for snow removal, lawn and some landscaping (that planted by the developer). We are in southern New England so snow removal is not a big item -- over the past years we have been billed maybe and additional $3-4k for heavy equipment to truck snow away. The Board consists of engineers (degreed), a doctor, and a lawyer. We revisit the reserve funding yearly and have determined that the 800 pound gorilla are the roofs. The rest can be and has been paid from cash flow. The owners are/were successful professionals and the units are sold in the $500-600k range. Turnover has been good.

I understand the comment about the fairness of current owners paying for future owners benefits. In theory, the unit owners share in the reserve fund should be priced into the unit's sale price. Is it?

I was just curios is anyone out there had had a similar experience and how they handled it. Thanks.
I'm not sure that my suggestion about a reserve study was heard....

While the roofs are an obvious concern, a reserve study will look at the other items that wear out, estimate life, and suggest an appropriate size of reserve fund. You mention a 1/2 mile private road. I'm assuming it's a paved road, which will have a finite life that needs to be replaced. Are any utilities (power, sewer, water) owned by the HOA? These too will have a finite life. Siding will need to be replaced. Your landscaping might have underground sprinklers which have a finite life. You might need to budget a 10 or 20 year landscaping renovation as folks tastes in landscaping change over time, or perhaps tree removal if some trees become too large. All of these will be accounted for by the reserve study and accounted for in the size of your reserve.

I highly recommend paying an outside professional to do a reserve study and then you'll have a solid number to discuss.
adamthesmythe
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Re: Condo Assoc seeking thoughts

Post by adamthesmythe »

> Why do the documents say the HOA is responsible for roofs? This is very different than being responsible for the entire exterior.

This is a choice made by the developer when he files the documents. BTW, a followup post from OP shows that the association is, in fact, responsible for the exterior.

> What benefit does it bring? Do the houses cost less because the owner of the house only owns 1/30th of the roof?

I own in an association with similar association responsibilities. The advantage to me is predictable and regular housing cost. I also get to take of economies of scale (certainly a big deal with landscaping work).

> What happens if the roof leaks and needs to be repaired, but not entirely replaced? Who bears that cost?

Either the association or the insurance company or both.

> Who's (sic) insurance covers the roof, the owner's or the HOA's?

Owners usually have insurance for the interior, HOA for the exterior.

> If a hail storm hits and half the neighborhood needs to get new roofs covered by insurance (doesn't matter whose), what does the HOA do with the 50% excess it now has in the reserve fund?

The reserve fund covers replacement of the other half of the roofs when due. The remainder and additional $ added to reserves would go for covering eventual replacement of the repaired roofs.

> Seems like it creates more problems than it solves.

Owning a house, SFH, townhouse in an HOA, or condo ALWAYS comes with problems. It's just different problems.
adamthesmythe
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Re: Condo Assoc seeking thoughts

Post by adamthesmythe »

> I understand the comment about the fairness of current owners paying for future owners benefits. In theory, the unit owners share in the reserve fund should be priced into the unit's sale price. Is it?

Probably yes. Whenever someone is considering purchase in a development with an HOA, they are ALWAYS advised to understand the HOA responsibilities and the financial health of the association (i.e., reserves, and the reserve study). This would have consequences for offer price and probability that sales go through.

I am surprised that your association full of professionals has not obtained a professional reserve study. Perhaps they approach the NYC co-op resident, in that they have enough disposable income to cover "minor" things like repainting, repaving, etc.
jimishooch
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Re: Condo Assoc seeking thoughts

Post by jimishooch »

amend the by-laws,

with consensus that's what i did. each unit owner insures their unit for all perils and full replacement cost (my detached stand alone unit qualified for a homeowner policy instead of a condo policy). HOA pays for biennial inspection and any repairs associated with inspection on the roofs. any damage done by storms, trees etc is on the unit owner. this takes the load off the HOA about insuring every single unit which is very very expensive. our HOA insures the officers and have a slip & fall liability policy on the common areas @ $540 annual for $1mil policy.

our HOA is responsible for the exterior of the units, driveway and some common areas. unit owners are responsible for their limited common areas such as doors, windows, garage doors, entrance ways, patios and balconies.

we have cement tile roofs with a 50 year life span. when replacement is needed it will be assessed and the by-laws were amended to reflect that.

run the numbers on the insurance. there are big savings when unit owners insure their own...

good luck and amend
jim
ralph124cf
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Re: Condo Assoc seeking thoughts

Post by ralph124cf »

This discussion seems to be conflating condos, townhouses, and single family home HOAs. Generally speaking, a condo is one big building with one roof, and the ownership piece is like an apartment. This might vary state to state.

In my state, the owner is generally responsible for only what is in his unit from the drywall in. He owns and repairs paint, carpet or other flooring but not the subfloor, appliances, and any pipes or wires that pierce the drywall or floor, but not what is in the walls or below the floor covering. Again, this can change with the CCRs

Ralph
ClemsonBogle
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Re: Condo Assoc seeking thoughts

Post by ClemsonBogle »

I have lived in a few associations over the years and here are the things i have learned.

1. Talk to make relationships with some other HOAs in your area. You can probably get better deals if you guys negotiate together for things like Snow removal, pest control, etc etc.... ALSO find out what the HOAs are for similar units in your area that are 15-20 years old if you can. If your HOAs are 150 and theirs are 400 then chances are you are under funding.
2. I purchased one of my units specifically because i knew it had a well funded reserve account with about 75%-80% of future expenses already funded.
They did this by always raising HOA by 3-5% per year to keep track of inflation and keep the reserves building in the early years where there are no repairs compared to years 15-25 where everything costs more.
3. Roofs will not last 35 years...not in my experience... There will be no guarantee, no builder, no manufacturer that is going to do anything about a 22-25 year old roof. Budget as if the roof will be needing repairs in 20-22 years and then if it lasts longer great if not you are prepared.

I think that a well run HOA with a good budget and a sense of what is coming would increase value long term. Also it means that you can do those little repairs as they come up to keep the property viable, if you are struggling to do an assessment to pay for a roof are you going to also make sure that the paint is in good shape? Also with so few units 2-5 units abstaining from paying and you having to put liens on the property could cause problems to pay for the work that needs to be done.

Take the roof cost do a time factor of 1-2% for inflation and materials, divide by 20, divide by 30 units.

My current HOA was hoping to use those Tesla tiles to self power our units...they do not price out well...=)
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