Rental Property Investor · San Diego, CA · Member since 2014 · 30 posts · 23 votes
We had a pleasant emergency HOA special assessment meeting this week. Due to updated CA codes & regulations, coupled with the lack of foresight & planning by the HOA Management & Board, our complex has to update 400+ balcony railings in order to maintain our insurance policy.
The railings are integrated into the stucco and balcony weatherproofing, so it’s not an easy remove & replace project.
HOA board received 5 bids and started using Capital Reserves to start this process. 1 year in and the HOA has nearly depleted all reserves! We're now in-line for a $4mil loan to complete the project and replenish the reserves. This equates to a $24k special assessment for each owner ($35k after interest on a 15 year loan).
The clubhouse chaos would have made Jerry Springer blush! The room was packed with people from every demographic - first time home buyers, RE investor, seniors living off SS & families struggling to make ends meet…especially with inflation and the always increasing San Diego Sunshine tax/costs. $24/$35k is a lot of money for anyone, but it will be a crippling financial blow to a lot of people!
This is our primary residence, but we having invested in Condos in the past & I was left thinking, what if this happened to us back then? It would have wiped out any/all cash flow & reserves for those investments. Wanted to put this out there for first time home buyer’s and new investors as a heads up and offer up some tips that have been shared on several other forums.
1. Have plenty of cash reserves!
2. Due diligence. Review the overall complex & financial status of the HOA prior to purchase. (Ours was solid up until a year ago)
3. Be conservative when evaluating properties & always include vacancy & capex allowances
Would I ever buy into a HOA again? Yes, they have been very good to us with tax benefits & appreciation (Not so much with cash flow).
Just throwing out my 2 cents into the BP world. Hope it helps someone✌🏼
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
3y
I have owned numerous condos as investments and lived in a couple of others. Any high rise building having structural issues is going to find solutions VERY EXPENSIVE. But, here are the two biggest problem areas with “special assessments”
1. Many condo associations do not collect anywhere near enough dues to create sufficient reserves to pay for either anticipated capital expenses/improvements or unanticipated problems. It’s always very unpopular to significantly raise monthly fees especially to create a fund for FUTURE expenses. I saw a recent survey that stated that 60% of the condo associations in Arizona do not have sufficient reserves to meet anticipated maintenance/repair items it’s important to understand the financial condition of the condo association before you invest in purchasing a unit
2. Most buyers hire an inspector to inspect their unit only. It takes both a structural engineer and a mechanical engineer, NOT AN INSPECTOR, to inspect a high rise building. The fact that in the unit you’re buying the toilets flush and the stove gets hot is wonderful. The big expenses are when the roof leaks, the balconies need replacement, or the chillers go out.
Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes
3y
One of the big issues w condos imo is that the Board members are unpaid. The kind of people you'd want managing your money/investment are not doing it for free, and the kind of people willing to manage the association for free, are not the kind of people you'd want managing your investment.
Rental Property Investor · San Diego, CA · Member since 2014 · 30 posts · 23 votes
3y
@Jeff S.
You must be reading through some blurred lines. I for one am not blaming the board. I actually am one of few supporting them. As @Jon A. mentioned they’re all volunteers and continue to get voted in uncontested. No one (including me) has been willing to step up and take this unpaid & unglamorous position. They’re like the holders in football…no one even knows they exist until the s#%t hits the fans!
I'm just stating what's happening so that young first time buyers and investors now the realities of buying into an HOA. I'm actually learning a lot myself with all the thread responses!
Rental Property Investor · San Diego, CA · Member since 2014 · 30 posts · 23 votes
3y
@Richard F.
Thanks for taking the time to review the information and for the detailed responses! This is why I appreciate BP! So much good content & dialogue on these forums. In all honesty, I have never looked closer at these documents than I have preparing for these responses. This experience and these responses have definitely opened my eyes to what to look for prior to buying into an HOA, even more so as a current HOA homeowner.
Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
3y
My recommendation, whether investor or resident owner, is to attend as many Regular Board meetings as possible, to be aware of what is going on "behind the scenes", and to ask, on the record, questions. While it certainly is true Board Members are unpaid, in most, if not all states where condo/HOA's are located, there is a provision in the law that allows the Association to pay for Board Members to attend seminars, classes, and other events related to the business of operating the Association and/or facilities. Typically these are 1/2 or full day events sponsored by local HOA / building industry / banking related businesses, featuring prominent local Business Leaders. Often RE Attorneys, CPA's, Insurance Brokers, and a variety of other vendors provide information and expertise that is locally relevant. They also refer you to numerous other pertinent resources.
It should also be noted that Board Members ARE expected to "learn" about their responsibilities and how they should be carried out. If you sit on a Board for five years and still do not actually understand the budget and reserves, or what documents to check for information on exactly what elements are Owner responsibility vs. HOA responsibility, you are not meeting your Fiduciary Duty. A Board Member's Standard for responsibility is known as the "Business Judgment Rule". They should also get an understanding of how Fair Housing Laws apply to their actions, as well as many other laws, over the course of their time on the Board.
Certainly some states have somewhat different laws and processes, but in general, the Boards of these Associations are expected/required to obtain "Professional" advice and recommendations for policy and operational direction. They are not expected to know how everything/anything should be done to be within the HOA laws AND their own HOA By-Laws. However, NOT obtaining professional recommendations can absolutely result in Personal Liability.
Where a third party Managing Agent / Account Executive is utilized, they should be providing significant guidance to the Board where needed, such as when the Board should hire a Consultant; seek advice from their Attorney; get multiple proposals for projects, etc. They typically are primarily handling the finances for the Association, collecting the maintenance fees and paying vendors, as well as preparing a preliminary Budget for the upcoming year. As that is their primary function, they should be following standard "Best Practices" in their accounting processes, with limited direction from the Board. Another function of the Managing Agent is to administer Policies of the HOA, such as "House Rules" enforcement, as long as those policies are current and lawful.
HOA Owners can access information as noted early in this thread by locating a nearby Community Association Institute Chapter, or other local HOA organization. Of course as an Owner you too can seek out and attend the seminars and classes noted above, however the HOA is not typically authorized to reimburse you as a Non-Board Member. There are plenty of opportunities for these seminars for under $100 to get very detailed information on specific topics from those sources, such as Budgeting and Reserves.
Boards can lighten their load with regard to certain projects or tasks, by establishing various "Committees", made up of Owners that are NOT Board members. A Budget Committee might focus on getting updated estimates for large projects being considered for the next year, or refining contracts for certain regular services such as groundskeeping or housekeeping. Their results would then be turned over to the Board for further refinement and approval/rejection or implementation. A Grounds Committee might have more detailed oversight of vendors providing the service, or an active role in enforcement. Using committees gives the Board more time to focus on the bigger picture, and gets more owners involved. The Board always makes the final decisions, of course.
Thanks for taking the time to review the information and for the detailed responses! This is why I appreciate BP! So much good content & dialogue on these forums. In all honesty, I have never looked closer at these documents than I have preparing for these responses. This experience and these responses have definitely opened my eyes to what to look for prior to buying into an HOA, even more so as a current HOA homeowner.
if you dont mind, can you share the address of the HOA ?
My recommendation, whether investor or resident owner, is to attend as many Regular Board meetings as possible, to be aware of what is going on "behind the scenes", and to ask, on the record, questions. While it certainly is true Board Members are unpaid, in most, if not all states where condo/HOA's are located, there is a provision in the law that allows the Association to pay for Board Members to attend seminars, classes, and other events related to the business of operating the Association and/or facilities. Typically these are 1/2 or full day events sponsored by local HOA / building industry / banking related businesses, featuring prominent local Business Leaders. Often RE Attorneys, CPA's, Insurance Brokers, and a variety of other vendors provide information and expertise that is locally relevant. They also refer you to numerous other pertinent resources.
I don't know, but I am impressed by your answer. It seems folks in Hawaii are taking real estate very carefully, here in CA, most HOA care no sh*t ; from realtor to HOA, folks just don't care. When I compare the HOA report from HI to my very own CA, it's vastly different. Definitely, we need to learn from HI folks here to do business correctly.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
3y
@Moses Moreno personally I don't believe homeowners should vote on anything when it comes to financial or improvements or color of buildings. It just creates lots of chaos. They should vote on who is on the board and if they don't like the board they can be removed but not before someone is willing to step up.
As far as reserves go there will always be a battle between the spenders and those that don't. If a reserve account is 50% funded that is pretty good. That means potential smaller assessments in the future or stretching out some items that actually have a useful life beyond what is projected in the reserve study.
You will have owners who bought new and have since gotten old and have less income. It is a struggle to keep them affordable and at the same times have high income people that want the place to be super nice.
These days people like to threaten everyone with lawsuits which then intimidates the board to spend huge sums doing study after study and then all kinds of legal negotiating and on and on. I feel your pain. At least get on the finance committee.
Rental Property Investor · San Diego, CA · Member since 2014 · 30 posts · 23 votes
3y
@Richard F.
Love the idea of sub-committees! This is my first time hearing about that option and it seems like a great idea for more homeowners to get involved…especially as it relates to their specializations (finance, construction management, negotiations, etc). I’m sure our board would appreciate the additional participation & support and is something I would definitely sign up for👍🏼 I’ll keep you all updated as that progresses, or doesn’t.
One way to invest in HOA is to determine the structure of the building yourself and read your own inspection report, take a look at the neighbor, whether it's maintained well or not. Ask your realtor for all the disclosure. Check its exterior. Find out what year its built, and run a search on how many supplies available in the market. Talk to people in the neighborhood. Do intel gathering like this. Sometimes the answer is in front of your eyes. HOA condo could be a great investment in a specific location at a specific time. I myself would avoid any condo HOA that has 4-5 stories built in the 1960s. Also when you do DD, you should interview and talk to the HOA property management and assess their response.
Good discussion here.... Just curious, what development is this particular condo? I have a few condos, and starting to witness how these HOA boards think differently.
Rental Property Investor · San Diego, CA · Member since 2014 · 30 posts · 23 votes
3y
@Kenneth Donaghy
Rough night for the Aztecs last night:(
I'd rather not mention the HOA or complex name. We already seem to be on the radar for several wholesalers with the number of calls and mailers our neighborhood receives, and I don't want to put a larger target on that.
I'd rather not mention the HOA or complex name. We already seem to be on the radar for several wholesalers with the number of calls and mailers our neighborhood receives, and I don't want to put a larger target on that.
Understand, I just like as much info to help clients, and have examples.... all property owners are always get hit up by wholesalers and realtors
