Funding roads owned by hoa

I’m on a finance committee and need research ways to raise 600,000 for our roads. We are a self managed hoa. This will be spread over the next 3 years.

You might want to start by consulting your bank to see if a loan might be possible. Our association has never obtained a loan, but I would think one thing the bank will want to look at your finances very closely (delinquency rate, if you have a reserve fund and how much is in it, etc.) You can start by taking a hard look at yours before having that conversation to see if the association can really afford it. Remember, assessments will have to increase because you'll have to pay back the loan (with interest), cover operating expenses and reserves.

There's also a special assessment, which would have to be paid along with regular assessments. Check your documents to see how that's handled - usually a certain percentage of homeowners must approve a special assessment. If you want to go that route, you'd better do some homework - what needs to be done, how much will this cost and why can't it be covered by regular assessments or a loan. Or perhaps getting a loan and simply increasing assessments won't be enough. All of this information should be presented to the homeowners so they can ask questions and debate what they want to do before taking a vote. This way, everyone will make an informed decision.

If you'd rather do all this with assessments alone, you will be looking at increases every year. Some documents call for homeowner approval if the increase will exceed a certain percentage over the current year, so you're back to doing your homework to make your case before the homeowners. In this case, I'd suggest a certain percentage every year for the next three years so everyone will know what to expect and budget accordingly. Since you're talking over a half million bucks for all this, don't be surprised if you'll need a special assessment, loan AND regular assessment increases.

And speaking of reserves, why do I get the feeling you either don't have one or it's underfunded (which, unfortunately is the story of many HOAs, including mine). If it's in decent shape, is there a reason you don't want to touch some of that money?

If you don't have a reserve fund, you will need to set one up immediately - it won't help you now, but when this again 20-30 years from now (because it will), your association will be better prepared. As you know (at least I hope you're aware of this), reserves are used to pay for major improvements to the community's common areas - like street repaving.

To help figure out how much should be in it, HOAs commission reserve studies every 5 years or so to calculate the useful life of each common area element and how much it'll cost to replace them at the end of that life. From there, the study considers how much the association needs to save every year to ensure the money will be there. A good study will also consider the impact of inflation and previous work done on those areas.

If you don't have a reserve fund, get the study done first and then talk to your bank about setting up a fund. It should (actually I think it must) be separate from operating funds, which is supposed to pay for routine maintenance. You can also talk to your reserve specialist and perhaps the association insurance carrier about setting up a reserve policy that will cover stuff like how often to have reserve studies, how it should be funded, etc.

Thanks Shelia,
We do have a reserve fund with about 100K in it and we may use it, but unfortunately it won't be enough. We're thinking we may have to get a loan, use reserve funds and also have a special assessment. Unfortunately, many of our homeowners are 70+ years old and on fixed incomes. We are a 55+ community and the good news is we are starting to get new owners that are in their 50s & 60s so that will help.
We have a meeting this afternoon. I'll let you know how this info is taken.
Thanks again.
Naomi

Naomi,

If you care to share, how did your meeting go?

Naomi,

Thanks for the update.

Having had to sell a 20% increase in Assessments to fund the reserves, I can say that the best way to sell any increase in assessments is to be honest.

Explain why it needs to be done without placing blame on past boards.

Explain what the Board has done to minimize expenses in order to minimize the increase.

Explain what the Board has put in place to keep this from happening in the future (in your case, I'd start with a Reserve study and then sell any increase in assessments to fully fund the Reserves.

Hope this helps,

Tim