When doing due diligence on HOA - how much reserve should I look for?

4 Replies

I'm looking to purchase a condo and I'm doing due diligence on the HOA. I have copies of minutes of their annual general meetings for the last two years (2013 and 2014) and I have their 2013 budget.

From their 2013 budget, I can see that they budgeted for maintenance costs of 19% and a maintenance reserve of 4% of total receipts (anticipated HOA payments and money from renting parking spaces). From the minutes I can see that they are planning to call in contractors to assess and give quotes on (1) replacement or repair of the roof of the building and (2) replacement or repair of the water tank. At this point they don't seem to know if they will need to replace or repair and the board has undertaken to consult with at least three contractors for each of (1) and (2). This is causing me to have second thoughts on purchasing the unit, which in all other respects looks like a great buy.

Is there some rule of thumb minimum that I should look for? Do 19% and 4% sound like healthy figures?

Do they have a reserve study that you can examine?  Because if reserves are insufficient you get hit with the dreaded special assessments to cover for insufficient reserves that normally would be used to replace dated systems. 

@Wendy Noble  

You should definitely look for a reserve study as @Steve Babiak  stated.  It should have all maintenance items listed and estimated replacement/repair dates and costs.  It will also have a schedule of fee increases and show if the reserves will fund into the future without special assessments.

I would ask for minutes from the last 6 or so regular meetings.  That's where the operating complaints will be publically hashed out, not at the annual meetings.  How the Board addresses any complaints here will give you an idea of how good the Board is.

@Steve Babiak  @Bob Bowling 

Thanks, I didn't know about "reserve studies" but I was thinking that their budget must depend on some sort of analysis. I'll have to ask if they have something like.

I'm not likely to get minutes of monthly meetings. In South Africa, HOA's are not required to have regular/monthly meetings. The trustees (aka, the board) meet a few times during the year in case anything comes up but the annual general meeting is the main event.

In the USA some states require reserve studies and that they provide a certain number of minutes to prospective buyers.  YOUR seller can always provide you the requested minutes.  I'd be concerned if they refused.

These minutes will reveal all the complaints and how they are handled and you'll see the failed votes ( just missed by one vote to limit rentals, etc.).  Some of my associations do monthly and some quarterly but here the annual meeting deals mostly with the new budget, that was argued over at the regular meetings and the election of new officers.  Discussion is limited. The operation of the Board will have a huge impact on the profitability of any condo.  Good luck!

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