Around the US, many HOA's are struggling with the prospect of fueling their coffers as their reserve funds are under-funded. What is the perfect balance?
When reserves are excessively loaded, there is always the temptation to spend unnecessarily and inefficiently. It's amazing what people can come up with to spend money on and when there is lots in the kitty, they usually are less mindful of costs. Conversely, when there is no money in the kitty, it is tempting to skimp and delay, even when some things are critically important. Common areas that are tired and dated may 'be ok to live with' but do they devalue all the owners properties? Probably. Getting the balance right between too much and too little in reserves is not easy and requires an independent evaluation of each HOA.
Brand new developments/condos may not need big reserves as with all systems new with a long shelf life before the need for replacement and repair. Older buildings/developments may require enormous reserves. All should be based on the following:
1. What is the condition of the property.
2. Has an engineering evaluation/report been done to provide clarity on the condition and shelf life of all systems, common areas, etc? Does the HOA income cover all expenses fully with contingencies for break-downs?
3. What is the 'wealth factor' of the building owners: it may be better to assess for specific repairs or maintenance than keep money sitting in a bank. Can the building raise a big chunk of capital in a hurry without resistance or the inability/unwillingness of some owners to contribute?
4. What do banks currently require to obtain financing, not just for buyers, but also for those wishing to take equity out of their homes?
Not all buildings and HOA's are the same. But like a single family home, they are all exposed to risks, wear and tear, rising costs, surprises, etc. Managing them is a serious, tough job. Just like some people who don't want to pay any income taxes but also demand perfect roads and security, many homeowners think funding all the things they take for granted and use every day are someone else's responsibility.
