Cohousing-L Mailing List: RE: HOA Reserves Investment Choices

[Rob Sandelin (floriferous]

One of the things that I have  seen some communities do with this sort of
money is to loan it to themselves to accomplish things that they would
normally borrow money for. For example, say the community wants a
greenhouse/hot tub/tropical lounge that costs $16,000 to build. Rather than
raise assessments or borrow money from a bank, they take that amount out of
their reserves and simply loan themselves the money for 5 years at 8%
interest. This way the project is paid for, and instead of borrowing money
from a bank and giving the bank the interest, they give themselves the
interest. So each year, the budget includes paying back the loan on the
project, which can keep the yearly assessments unchanged or only slightly
changed. In this way, you can use your own capital to accomplish things that
otherwise would require a loan or raising assessments.

 I have also seen community members who have capital to loan do this as
well. I have also seen one case where a community member put up a personal
bond, which covered such a loan, so if the group defaulted or needed the
money it was available.

The risks, as far investments goes, is pretty low because the group has the
power to assess itself, and most groups have a voting fallback, thus
insurance that the loan will not be defaulted on. Of course, this ties up
that money for some period of time, but that is often the case with many
investments anyway and so you would need to keep an eye on when you wanted
your capital to be liquid.

Note: This is might not be allowed by the HOA laws of some states. So check
with your local attorney. In WA state, we are free to do this.

Rob Sandelin
Community Works! Group process consulting for social change nonprofits
Sharingwood Community, Snohomish, WA


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