|Re: HOA Dues Increase & Reserves||<– Date –> <– Thread –>|
|From: Sharon Villines (sharonsharonvillines.com)|
|Date: Sat, 6 Jul 2019 11:32:10 -0700 (PDT)|
> On Jul 6, 2019, at 5:29 AM, R Philip Dowds <rphilipdowds [at] me.com> wrote: > > Sorry. but I’m not sure I’m persuaded that the typical homebuyer is > especially interested in, or capable of analyzing, reserve funding. Nor do I > have reason to suspect that the average buyer of a cohousing unit is more > sophisticated than the average buyer of an ordinary condo, or a single family > home. I agree with Diana — if new residents don’t, other people do. Real estate agents, for example. Their business comes from referrals and repeat customers. They won’t list or sell properties with bad tax records, inadequate reserves, legal battles, etc. They want satisfied customers. Even if your community doesn’t sell through agents, agents influence the market. A person who is looking at your building may be looking at others with an agent. They may be friends with an agent. Many tax and mortgage records are available online now. In many areas of the country, condos and HOAs are relatively new. And even suspect. Cohousing is relatively new. At 20 years major repairs and replacements come due and that is when the money problems will appear. And cohousers will understand why adequate reserves are important. Understanding now would be better than in 20 years when they have no savings. Very wealthy condos prefer to keep bare bones reserves because their residents are capable of handling large assessments and believe they can make more money with their money if they invest it. Reserves are invested in low risk securities and during high inflation years can actually lose value. But if we want cohousing to remain relatively affordable, we need to finance it properly. Households that live paycheck to paycheck cannot absorb even an extra assessment of $1,000. I don’t know everyone’s financial condition but we have at least 3 households in that position. Many of us would never even be able to move in now. The prices have quadrupled since 1999 when we signed our contracts and we had special mortgage and downpayment aid from DC because they were trying to increase homeownership. (And tax base.) > None of this, however, is directly related to saving ahead for major capital > replacement projects. Consider the ever-popular single family home and its > owner. A minority of American households has the financial flexibility AND > the financial management skills to save ahead for the new roof and the next > paint job. But to pay for these big hits, many others must rely on either > (a) re-financing the first mortgage, or (b) supplemental borrowing (e.g., the > home equity loan, which is the modern euphemism for the previously > much-stigmatized “second mortgage”). Absent these versions of the “special > assessment”, households often learn to live with the disappointments of > deferred maintenance. Foreclosures and forced sales sometimes fall upon > households that simply never factored in the correct costs of operations and > maintenance over time. (Good lenders will set limits that help keep novice > borrowers from getting in over their heads …) Is that what cohousing communities should be advised to do? My idea of cohousing is to develop a community that functions in the best interests of the community members—whether they are owners, roommates, renters, or others. That means responsible financial planning. Insufficient reserves is not responsible. I can envision a community that does develop with the understanding that in 10-20 years costs will increase to cover additional debt, but the financial documents should clearly state that and have a plan so current residents don’t have to sell, unless that is their plan. There is a difference from individual homes and a condo. Residential costs for single homes are different from multi-household complexes. There are different standards and zoning requirements for condos vs single homes. We have to meet insurance standards and hire licensed and insured vendors. Small and one-person services don’t like to work in condos because it isn’t “residential”, it is commercial. They don’t want big headaches. I can hire unlicensed workers, but the HOA can’t without incurring liability risks. This adds cost and moves many decisions out of discretionary. The work is required by law. We just had to have all our indoor and outdoor sprinkler heads replaced because many were painted over and didn’t meet code anyway. Individual homes don’t even have sprinkler systems. AND if the delayed repair causes damage to an individual unit, the Board can be sued for not protecting the capital value of the unit. One purpose of the reserve study is to protect the HOA from lawsuits. That’s why it is important to use a certified reserve specialist and fund to the average level that most condos achieve which I think is about 60-80% > But saving ahead can be unpopular because it implies, to some, that the > occupants of today are subsidizing the occupants of tomorrow. In general, > despite its incredible technical aptitudes, the human species is not so hot > at making, and adhering to, plans for fifty years ahead. (Which is why our > civil infrastructure crumbles away.) Again, I hope cohousing is also educating people about how sustainable and affordable housing works best. How do we design a sustainable future? > None of which is to say, Don’t bother with a “reserve plan”. Just recognize > that the classical “fully funded” reserve plan — one that anticipates total > replacement of a physically and functionally obsolete structure after five > decades plus or minus — is stunningly costly. Partial plans focussing on the > next ten or twenty years, and offering a funding strategy that covers just > the “major” or critical systems, can look and feel more realistic. even to > the solvent and future-oriented. The cost of a reserve study by a certified reserve specialist in DC is the same for one study as the other—an initial study with a site visit is $5,000, an update with a site visit is $3,000. It includes a maintenance study. Association Reserves also offers calculations based on your own list of facilities without a site visit at $300 — that may be an old price but it is not incredibly expensive. There is also a spreadsheet floating around in cohousing that will do the calculations. What period of time is covered is a computer calculation based on projected inflation and interest rates. Clearly it will be less accurate 50 to 100 years out, but a graph of 100 year costs has been incredibly important in convincing our members that we need to save now for the big stuff 50 years out. The 100 year chart shows the huge hump at 50 years (we are now at 30 years) which was a visual representation of dollar amounts that communicated more than the numbers. The costs for the first 15 years were about half an inch high on the graph but the hump at 50 years is at about 8 inches — and also wide. There are several years of major expenses for big things like the roof, resurfacing the parking lot, sidewalks, etc. But because we have planned, we will have the money before it comes due without huge increases in fees or assessments as we get closer. Our reserve study person retired last year so we have a new company. They do a 30-year projection but explained that 30 years includes savings for the large items that will be due in 50 years. In other words, they use the same base value for both the 20 and 100 year studies but don’t make an attempt to project the yearly savings required beyond 30 years. Our reserves have also allowed us to take advantage of opportunities that we wouldn’t have otherwise. Solar panels recently became cost effective for buildings like ours. To install the panels it made sense to re-shingle the roof early. I think it was a 25-30 year roof but not in good shape. By replacing it before installing solar panels, we saved the expense of removing the panels to replace the shingles. And we replaced with better shingles with a 50 year guarantee. So now we can save for the shingles over a 50 year period. We were able to pay for early replacement with the money we had already saved for the shingles (20 years of savings) and borrowing additional funds from the reserves. That extra amount will be paid back with the savings from the electricity bills for the CH and grounds. I’ve forgotten the details of the funding of the actual panels but it was some combination of reserves and DC tax allowances. We now have no electricity bills for the CH and grounds and are paid I think $400 a month for extra energy we produce. Without strong savings, we wouldn’t even be able to consider that option. It is enormously anxiety reducing when the HVAC goes out in the CH or we have to dig up the green to find the loops for the geothermal heat pumps. When we see all those trucks and crews of repair people we know it won't raise monthly fees. (I know this is long and I keep saying the same thing, but I think it is important and that it convinces someone to start saving.) Sharon ---- Sharon Villines Takoma Village Cohousing, Washington DC http://www.takomavillage.org
Results generated by Tiger Technologies Web hosting using MHonArc.