Special Assessment Help

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Special Assessment Help

Will Sampson
Member since 2022 · 5 posts · 0 votes

I bought a 1 bed condo in Panama City Beach in the beginning of 2022, it has been a profitable investment but cheap, so not a ton of cash flow. Unfortunately, the HOA is about to drop a special assessment for nearly $2 million divided by 30 owners. I do not have the equity and not a ton of cash lying around. The HOA claims they have not had much success finding financing options. I would appreciate some advice on financing a special assessment and any recommendations for places in Florida to assist...I'm trapped!

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y

Man, this is tough and one of the reasons I warn against investing in an HOA. My first investment ever was a little townhome in 2004 that I bought for $67,000. Three months after purchase I received a notice that my HOA special assessment of $4,000 was due. The HOA President showed proof that she had informed my agent several times of the special assessment coming up and even provided him a letter that he could share with me. He never told me about it.

Unfortunately, my agent was my father-in-law.

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  • Cain McNeil
    Specialist · Panama City, FL · Member since 2015 · 91 posts · 22 votes
    3y

    Hey Will, I went through something similar in Panama City after Hurricane Michael at a condo I lived in. Our HOA used Bancorp South (now Cadence Bank) to finance the assessment. Feel free to message me for more info.

    1Reply
  • Paul Sandhu
    Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    3y

    Another good example of why not to do an STR in a HOA.

    1Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    3y
    Quote from @Paul Sandhu:

    Another good example of why not to do an STR in a HOA.


     And to have cash reserves.

    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Hey @Will Sampson, well, you could sell the unit asap. There is not much you can do when these come up. Did you vote on it? What is the SA for?

    In Bend, Oregon, we almost bought a small 1/1 condo right near Mt Bachelor. There was a pending special assessment for residing the entire complex so that is why so many were for sale. There was a single majority owner of units that essentially made the decision to reside which it needed badly as it wasn't properly maintained.

    The assessment for the 1/1 was 65k. For a top unit 3/3 it was almost 400k. People who had owned those for years were literally giving them away as they couldn't afford the assessment. You could get a 2500sqft 3/3 for $100. The estimated value of that unit then was around 200k.

    Are all the units where you are the same size so everyone is on the hook for 66k? Are there larger units paying a larger percentage of the special assessment?

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  • Will Sampson
    OP
    Member since 2022 · 5 posts · 0 votes
    3y

    Hey Michael, thanks for the response.  All the units are the same and each will be on the hook for the same amount.  The exterior stairwells were installed improperly and are failing, all need replaced.  The company that installed is of course out of business.  I am putting it on the market, but will be a very tough sell with interest rates and this assessment.  I am really hoping to find a financing option that is long term.  

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  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Yikes @Will Sampson. So sorry man. Good luck and I hope you come out OK.

    0Reply
  • Lauren Kormylo
    Rental Property Investor · Phoenix, AZ and Rehoboth Beach DE · Member since 2019 · 1k+ posts · 1k+ votes
    3y

    All of the railings failing does not happen overnight. This is likely a problem that was known long before this. I would investigate whether the HOA informed homeowners about this before you bought it. If so, the previous owner is legally obligated to inform you prior to the sale.

    2Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Also, you should be able to get a good look at the replacement quote. I am curious as to the costs. 2m seem like a lot to replace outside staircases. Does it require a complete rebuild of an enclosed stairwell? Is the whole structure compromised?

    What @Lauren Kormylo said is spot on. I wouldn't hesitate to investigate who knew what and when. If you find out it was hidden from you, then you can go after the previous owner and maybe the HOA depending.

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  • Jeremy Horton
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    3y

    There are some lawsuits going in o PCB with HOAs (some due to hurricane damage). I my buddy owns a 2/1 STR and his special assessment was about 45k - came about 6 months after he bought it.

    This is "partly" due a lot - due diligence on the property, having cash reserves, budgeting for CapEx (special assessments are cap ex after all).

    This is another thing a lot of STR owners don't factor into their returns - ah yea you made 10k net the last 4 years and here is the 45k special assessment - so you essentially made 0% return on your investment - so this is something that MUST be budgeted for and calculated into your ROI

    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    I agree @Jeremy Horton, but I don't know how you could plan ahead in the ROI calcs for something that hasn't happened. I know you can plan in general and budget for the possibility which everyone should do for CapEX anyways.

    Serious question, how do you do it ahead of time? Do you have a specific amount or formula based on sqft that you budget regardless of the actual future outcome? If it doesn't happen it is gravy and if it does you planned for it in the ROI so your CoC is still solid?

    Personally I avoid condo's as we dodged a bullet years ago on a special assessment that we knew about. We didn't want that to bite us.

    EDIT - Also, do you do a separate line item or add it to CapEx?

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  • Paul Sandhu
    Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    3y

     Do you have any alligators, grizzly bears or wild hogs near where that company is located?

    0Reply
  • Jeremy Horton
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    3y
    Quote from @Michael Baum:

    I agree @Jeremy Horton, but I don't know how you could plan ahead in the ROI calcs for something that hasn't happened. I know you can plan in general and budget for the possibility which everyone should do for CapEX anyways.

    Serious question, how do you do it ahead of time? Do you have a specific amount or formula based on sqft that you budget regardless of the actual future outcome? If it doesn't happen it is gravy and if it does you planned for it in the ROI so your CoC is still solid?

    Personally I avoid condo's as we dodged a bullet years ago on a special assessment that we knew about. We didn't want that to bite us.

    EDIT - Also, do you do a separate line item or add it to CapEx?

    So we know places with HOAs and condos with amenities will have a special assessment due every 5-10 years - they always will - the roof has to be replaced, the pools, shops, tiki bar replaced/serviced, parking garages, siding, windows, sliding doors etc. You can see what the past ones were or budget accordingly - I use 10% on my LTRs but they gross less likely than an STR so you could probably get away with 5% of your gross income. Better to be conservative and estimate a slightly higher expense % here.

    I base mine off a percentage of the gross income - the income usually trends well with the size and type of property. 

    Condos don't really have a Cap Ex - water heaters are small, countertops are small - everything is smaller and relatively cheaper - usually. So everything that may need to be replaced within the condo I run as repairs/maintenance. I run a separate line item for Cap Ex - since for a condo you don't personally have a roof, siding, windows etc - the special assessment will pay for these items hence the special assessment is essentially a Cap Ex expense. 

    If I own the building I run the major repairs as Cap Ex - countertops, roofing, water heaters, AC units, septic etc. If it's a condo with an HOA and special assessment grossing 60k I'd use 5% this is 3k a year - over 7 years gets you 21k - throw it in an S&P 500 tracker and it'll end up closer to 30k, take it out and pay off the Cap Ex. Are the numbers perfect, well no, but you can get pretty close.

    Here's how I do it - this is just a spreadsheet I made and use (don't look at the actual numbers and math, it's a worksheet, just look at the descriptions for the Expenses)

    1Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    3y

    How does a special get so high, what is it for? Here in my market Chicago our condos get specials but I have never seen it be more then 6-10k range a unit. 

    P.S I would explore option of selling now. You also could pull from a HELOC to finance it.

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Thanks @Jeremy Horton. That does make sense. On the SP500 tracker, you mean like a mutual fund or something like that? I hadn't thought of that as a way to pay for upcoming expenses.

    0Reply
  • Ryan MoyerBusiness Member
    Property Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 996 posts · 1k+ votes
    3y
    Quote from @Michael Baum:

    Thanks @Jeremy Horton. That does make sense. On the SP500 tracker, you mean like a mutual fund or something like that? I hadn't thought of that as a way to pay for upcoming expenses.


    Yeah I'm assuming he just means you invest the capex in the SP500 while you wait for a repair/assessment instead of letting it sit in a bank account.

    Not as awesome if your special assessment came right now while the market is down, though.

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  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Yeah @Ryan Moyer. I was thinking the same thing, but maybe something with a 3-5% fixed rate return that is still liquid.

    The best money market rates I found are right around 3%. Plus some banks are offering 3.25% savings account rates.

    Not as much as what @Jeremy Horton is talking about but you aren't at the mercy of the market. For example this year so far the S&P500 is down about 15% for the year. 

    I like the idea, but there are a lot of moving parts to watch so you don't lose in the end. I am not sure I could do it well. Maybe with a professional?

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y

    Man, this is tough and one of the reasons I warn against investing in an HOA. My first investment ever was a little townhome in 2004 that I bought for $67,000. Three months after purchase I received a notice that my HOA special assessment of $4,000 was due. The HOA President showed proof that she had informed my agent several times of the special assessment coming up and even provided him a letter that he could share with me. He never told me about it.

    Unfortunately, my agent was my father-in-law.

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  • Ryan MoyerBusiness Member
    Property Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 996 posts · 1k+ votes
    3y
    Quote from @Nathan Gesner:

    Man, this is tough and one of the reasons I warn against investing in an HOA. My first investment ever was a little townhome in 2004 that I bought for $67,000. Three months after purchase I received a notice that my HOA special assessment of $4,000 was due. The HOA President showed proof that she had informed my agent several times of the special assessment coming up and even provided him a letter that he could share with me. He never told me about it.

    Unfortunately, my agent was my father-in-law.


     Oh man that creates an awkward situation, lol.

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  • Ricardo Hidalgo
    Real Estate Agent · Member since 2019 · 569 posts · 257 votes
    3y
    Quote from @Will Sampson:

    I bought a 1 bed condo in Panama City Beach in the beginning of 2022, it has been a profitable investment but cheap, so not a ton of cash flow. Unfortunately, the HOA is about to drop a special assessment for nearly $2 million divided by 30 owners. I do not have the equity and not a ton of cash lying around. The HOA claims they have not had much success finding financing options. I would appreciate some advice on financing a special assessment and any recommendations for places in Florida to assist...I'm trapped!


    I've seen some HOA's collect by payment options or you may have to sell the condo if it's something you don't want to deal with. I am seeing more condo complex in our area raise the hoa amounts or doing a special assessment due to recent issues with condos.

    0Reply
  • Jeremy Horton
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    3y

    @Michael Baum

    Yea I meant an S&P 500 tracker index fund - definitely depends on your level of risk, and I always keep ~6 months cash per property, after that, I invest the rest. Still liquid and usually gets you 8-10% over the long run. Usually you just need a few thousand per property for a small rehab or bigger repairs. If a big special assessment is coming up I think it could make sense to move it to something with a little less risk but still liquid

    1Reply
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