No HOA reserves but operating funds look good - should I run?

Question

Hi BP Community! Total newbie here - so bear with me if this question is obvious to others! My husband and I considering putting in an offer on a small 1-bedroom 1 bathroom condo in St. Petersburg, FL. Using the DealCheck app everything looks great from a cash flow/expenses perspective, however, when I asked the RE agent some questions about the HOA, I discovered that the HOA does not have and reserves. She did provide all the operating expenses etc from 2018 and everything looked good but how concerned should I be about the HOA not having any extra reserves? She said some HOA's don't have reserves and that is pretty typical if they have robust operating reserves. She also manages the condos too just as a frame of reference. Totally open to any and all advice on HOA's and what I should look out for in terms of this topic!

Thank you in advance!

Mike McDermott · Answer

Florida has condominium reserve requirements but even lacking those requirements, Reserve Studies and adequately funded reserve accounts are considered a best practice. You don’t want to move in to a building that hasn’t been maintained and immediately start paying for prior owners’ lack of maintenance. Since this is a condo which means that essentially all exterior maintenance is a shared expense, it is critical to know how many years life remain for big ticket items such as the roofs, paint and pavement. Depending on the building, also be aware of significant mechanical items such as elevators, boilers, life/safety systems, etc. An older building may have growing infrastructure maintenance and replacement needs for systems such as sanitary sewer lines, water, electric, etc. If the exterior has wood elements such as siding, stairs, balconies, and railings, these all can be expensive propositions if there has been poor maintenance which has allowed moisture intrusion that resulted in dry rot.

Theresa Harris · Answer

@Sinead Norenius How far back do to the financials go? Without any reserves, if you need to fix something, there will be special assessments. Even with reserves if the HOA isn't run properly, you can have issues.

Mike McDermott · Answer

@Sinead Norenius, difficult to say what the HOA will disclose, but I believe your transaction is with the seller anyhow, so you'll have to deal the seller's knowledge or lack of knowledge.

Sinead Norenius · Answer

Ok good to know @Raymond J. Rodrigues!! Thank you for the info. Super helpful!

Sinead Norenius · Answer

@Mike McDermott great point on the large mechanical items!! Would an inspection give me better insight into when those items are going to be updated or should the HOA disclose those items to me ahead of time if I ask? Just not sure what the HOA is legally obligated show me?

Sinead Norenius · Answer

@Bill Brandt - great points!! Thank you.

Raymond J. Rodrigues · Answer

@Sinead Norenius many condominiums in Florida opt to keep little to no reserves in order to keep the HOA low. If you decide to buy a condo in florida with no reserves as an investment going Fannie or Freddie Mac, expect to put 30% down on a limited review.

Nathan Williams · Answer

wow Im surprised you were able to get this kind of info on a HOA as a prospective buyer. Most HOAs I dealt with would provide next to no details.

Bill B. · Answer

In most states the Hoa are required to have a reserve study done yearly and follow it. I would expect either a very large one time assessment or a large monthly assessment from now on. If you would still buy if the Hoa fees were double go ahead. If not, try to get a written commitment from the Hoa how soon and how much they plan to raise the fees or ask for an assessment.

Even with reserves our small complex had a $7500 assessment due last year for new roofs.

Sinead Norenius · Answer

@Theresa Harris they only gave me 2018 but I am sure I could get more years. But agree with your point with making sure the HOA is run properly. Think I am going to pass until I can get down there and look at the property myself and ask some of the neighbors etc their opinion too. Thanks so much for the help!

No HOA reserves but operating funds look good - should I run?

No HOA reserves but operating funds look good - should I run?

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