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

[David Mandel (dlmandel]

Rob Sandelin wrote:

> 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....  ...

Excellent point, up to the last sentence. The money has to come from somewhere to pay back the loan. It has to be an assessment of some kind to ensure that it will be paid.

We do this at Southside Park, and we even use the resulting assessment to make up to a small degree for the lack of consideration of income differentials in the regular HOA assessments (we considered that but decided it would be too complicated and would make only a small difference). So we level things out to some degree with our capital fund.

To keep it from being too risky, we set a conservative limit on how much is the most that will be borrowed from the reserves for capital projects: It was $5,000 maximum for our first five years, now $10,000 for the next five. We then figure the average monthly payment needed per household to ensure repayment in that time, assuming (guesswork here) that use of the fund will be more or less spread out over the time period. Next, we recommend payment amounts over a very progressive scale, by unit size (1 to 4 BR) and ability to pay (low, medium and high). Current range is from $2 a month for a low-income 1 BR to $20 for a high-income 4 BR. People declare their appropriate level and can change if it does. We monitor to make sure we're not falling short of the projection, and if we were, we would limit our buying accordingly. The accounting at the end of the first five years worked out fine and we got some nice stuff, mostly things we thought we would get right after move-in with leftover construction money, but there wasn't any (bet that hasn't happened to anyone else!). So we're willing to go a little more out on a limb for this period.

Apropos the recent discussion about communes/cohousing (and for the most part I liked Rob's straightforward and substantive distinction), the rationale that "we're not a commune" was used when the renewal occurred by one of our members who wanted to replace the system described above with one in which capital purchases would be made only if enough people as individuals were willing to put up the money, on a case-by-case basis. I wrote a rather lengthy argument against full adoption of such a "free market" approach, saying essentially that even though yes, we are not a commune, the principle of collective decision making for major items meant to be property of the community is too important to abandon. I'd offer to send it to anyone interested but I'm afraid it's locked inside a long-defunct old Mac. (Does anyone know an easy way to convert its files, which I think I can get to, into ones that would be usable on my Windows computer? -- and pardon the digression, please.)
David Mandel, Sacramento _______________________________________________ Cohousing-L mailing list Cohousing-L [at] cohousing.org Unsubscribe and other info: http://www.communityforum.net/mailman/listinfo/cohousing-l