Tips on how to prepare today for increased facilities maintenance and replacement costs.
I live in a community that is nearly 25 years old. I certainly haven’t aged 25 years since we moved in, but my community has. As a board member, treasurer, and president for 8 years, I’ve experienced first-hand how amenity and common area maintenance costs can dramatically increase over time. If your community is not prepared, you could be in big trouble.
Fortunately, our community has a current reserve study, and we’ve been funding our reserve account according to plan. From my experience working with HOAs and community associations across Georgia, that’s often not the case. Here are some ideas for ensuring that your community is saving today to enjoy good financial health in the future.
How time flies for HOAs
After any developer turnover issues (missing funds, assessment adjustments, etc.) have been resolved, life is very good for the vast majority of HOAs. Dues are coming in and maintenance costs are low. When a community reaches the magic age of about 15 years old, things start to change. Repair requests become more common, major renovations are required, amenities need to be replaced, and expenses skyrocket.
Most HOAs are prepared to write those big checks. The HOAs that have not adequately planned may face major dues increases, special assessments, bank loans, or worse. Here’s how to make sure your HOA is ready for its golden years:
- Update your reserve study. While we don’t conduct reserve studies, we recommend that our HOA and community association clients update their studies every 3-5 years. Repair and replacement costs change constantly. For example, our water slide replacement cost doubled in 5 years as manufacturers shut down. If your HOA doesn’t have a reserve study, commission one immediately.
- Fully fund your reserve. Just like many people have trouble saving for the future, so do HOAs. But while we may face many unknowns as we age, an HOA’s reserve fund is already allocated to specific future repair and replacement projects. The work will need to be done. It’s just a matter of when.
- Conduct regular inspections. Most property management companies do this, but consider hiring a qualified inspector or contractor if your community is self-managed. Routine inspections may uncover potential problems before they become expensive repair issues, saving you money today that can be used to fund your reserve.
- Increase your maintenance budget. Assume that the annual budget will need to be adjusted every year to accommodate the increased frequency and cost of maintenance. I think we must have contacted our irrigation vendor every week last summer to fix another leak. Consider allocating 5-10% more each year to your budget’s repair and maintenance line items.
- Raise your dues. While this won’t make you the most popular board member ever, you can’t kick the can down the road without paying a heavy price later. HOAs that delay these decisions may be forced to implement major dues increases or special assessments when maintenance becomes critical. Better to implement a smaller increase now, or a tiered increase over time.
Start saving today
I sound like a financial planner, but it’s never too late for your HOA or community association to start saving for the future. The earlier you start, the better off you’ll be. Is your HOA prepared? If you’re not sure, please contact Bach, James, Mansour & Company. We’ll be happy to review your budget and reserve plan to confirm that your community will enjoy good financial health today, and for many years to come.
Neal Bach, CPA