Need to Raise Funds for New Roof: No Reserve

I just became a member of our HOA board and have found out we have only $20,000 in reserve funds. Walking the property I have realized the 64 unit complex has been neglected and needs new roof's and facia.
Besides a special assessment or raising HOA dues are there any other ways to finance this project. Are there any creative ways such as taking a loan on the common grounds and paying it off with each owner paying a small some every month to pay the loan off? Any help is appreciated!!!!

Thanks ,
LC

Lana:

You certainly could do that, the only problem is then the owners are busy paying off the repaired roof and not putting away for repairs down the road. Unfortunately it appears that no one paid any attention to this and sooner or later the homeowners will have to face the music and pay for it. Borrowing is certainly a way to delay the inevitable, and it may be the best option right now. I would develop a long range plan for your association and its reserve funds, including first of all how to finance the repairs now, but also be in a position so that doesn't have to happen in the future, or at least not as bad. I would look at your budget and operating costs and trim the fat so to speak, look at annual increases in dues that are smaller and not a huge increase all at once. Look for associations in your area that may also need repairs and try to go in on one contractor to lower the price a bit. Get multiple bids for your repairs and don't be afraid to use those to try to get contractors to lower their price a bit. That is about all I have for ideas, some may not work.

Click on the Community Associations Network link to the right. On the Home page is an ad for NCB Bankwhich specializes in loans to associations. Also under the site name is a link to "National Service Directory which has more banks listed.

You're probably going to have to do a combination additional assessment and loan. First look at your documents. Some documents differentiate between an "additional" assessment and a "special" asessment. The "additional" assessment may be levied by the board, without a vote of the owners, if it is needed for the repair and replacement of existing common areas. A "special" assessment, which requires a vote of the owners, is for captial improvements, soemthing new. Check your docs to see if the board can assess, without a vote, for repairs.

Because of your financial situation, you may not be able to assess, or borrow, enough to do the whole job. As part of your process, you should find a roofing expert to prioritze the repairs and/or replacements. You may be able to spread them over a number of years, and still get a decent price, by contracting for them in that manner (this gives a roofing contractor a certain amount of guaranteed business each year. You won't get the lowest price that way, but you shuold get a decent one).

You'll need to develop a good plan, detailing all of the items that need to be repaired or replaced and when. This is normally a "Reserve Plan" done by reserve analysts. You'll need one eventually, but you probably don't have the money to handle it right now. Put a committee together to do the best job they can. You'll want as many people as possible on the committee, so that they see what's needed and what it will cost, and hopefully will buy into their own recommendations.

You're going to need to begin to develop a plan to "sell" this to the owners, especially the absentee ones. If not done well, they will simply vote you out either at, or before the next election. This is a public relations task and you will need to think along those terms. Lay out why its needed, how it will impact their investment, both if the work is done and if it isn't, the exposure the association faces to possible lawsuits for failing to maintain the common areas, potential problems with mortgages and re-financing, etc. There are a number of articles out there that talk about the importance of maintaining the association.

By the way, you won't be using the common grounds as collateral. Instead, it will probably be future assessment income.

Try putting a plan together and bring it back here and we'll try and help you refine it.

Joe

Acquire a loan for the current repairs before there is additional damage to the building, costing more later. Increase the assessments to cover the additional loan payments for the life of the loan. Banks will lend based on the associations assessments.

Update your reserve study, which should be updated every few years so that you can plan for major repairs. Increase the assessments to build the reserves over time based on the study.

We just amended our covenants to allow for an initiation fee. Every time a home sells, the buyer will pay an initiation fee same as the current year's dues. This money will go into the reserves to help off-set increases in the annual assessment to homeowners.

Each year, you should have some type of increase in your assessment, even if it just a 'cost of living' increase. Never lower the assessment.

Thnaks to everyone who responded to my problem. I am working on a plan to present to the other board members .