CondoAssociation.com Announces HOA Construction Loan Program
Construction loans are now available exclusively to Townhomes, Condo Associations, Cooperatives, Office Condominiums, Timeshares and Homeowner Associations (HOAs) at CondoAssociation.com at very competitive rates and terms depending on the Association's creditworthiness.
While traditional construction loan interest rates can be anywhere between 8-15%, CondoAssociation.com can offer very favorable terms to Community Associations because of specialty HOA loans which are secured by an assignment of the assessment rights. Construction loans traditionally use the property asset as collateral or control of the association's cash.
This HOA loan structure offers a bright spot to Community Associations and other types of associations looking to start or complete new construction projects, whereas traditional construction loans may be too expensive or not available.
- HOA Loans for construction don't require a lump sum down payment
- Traditional Loan To Value (LTV) models don't apply to HOA Loans
- Construction loan uses may include, but are not limited to renovations, the purchase of units or land leases construction defects and construction defect litigation and renovations.
- HOA loans also apply to Condo Associations, Homeowner Associations, Community Association, Co-Ops and Timeshares.
Some associations adopt budgets that have little relation to reality as to forecasting assessments needed to cover expected expenses.
Brad Schneider of Condo CPA in Elmhurst offered an example based on a real situation. A manager prepares an accurate budget that reflects a 15 percent increase in assessments but the board rejects it, ordering the manager to drop it dramatically.
He then comes back with a 3 percent increase that he is sure will likely result in adverse financial consequences to the association later. But this is what the board wants and the directors ratify it quickly.
"The expenses are not really reduced and the year ends with a deficit," said Schneider. "That deficit first is paid with operating reserves and then they borrow from the capital reserves."
That ultimately leads to a special assessment to pay for capital work or for diminished or depleted reserves.
Some associations slash services to a minimal level. "If they cut back on security or on basic services like cleaning, they are reducing the value of their units indirectly," he said. "When prospective buyers see the condition of the property, they will discount how much they will pay for the units."
Schneider encourages associations with central heating plants to look into energy-efficient boilers. "They can reduce the amount of gas so much that the payback can be less than three years," he said.
Boards also should not delay collecting from owners delinquent in their assessments. "This can help avoid some unit owners having steep balances that they have no way to pay," he said.
Larger associations should set up inventory systems that monitor supply usage.
"If supplies are tracked, costs will go down," he said.
Associations with unionized employees should make sure that union monthly assessment forms contain the names of all employees in the union. Check to see if part-time employees have to be included.
"If an association owes past-dues for employees, the union charges exorbitant rates of interest," he said.
Here are other ideas from Schneider:
- Pay insurance premiums in advance if this results in lower rates or no interest charges.
- Deposit funds in interest-bearing accounts.
- Seek to reduce charges for lock boxes.
- Keep bank accounts within the $100,000 limit for FDIC insurance.
- Check with several vendors to find the best deal on phone/Internet combinations.
- Determine if leasing rather than purchasing copiers is less expensive.
Energy savings
Tim Allwardt of Aegis Properties added some energy cost-saving tips that both associations and individual unit owners can follow.
Use energy-saving light bulbs. Dialing down thermostats in winter, and up in summer. Lower shades to retain heat in winter and to deflect the sun's rays in summer.
Tracy Davis of McGill Management, however, cautioned against one means by which associations might try to control costs: always selecting the low bidder for a service or a job.
"Lowest price won't always be the best," she said. "You sometimes have to end up paying again if the job wasn't done right. Make sure the company hired is the right company for the job."
Always check references and inspect work a contractor has previously completed before making a final choice. An option is always a HOA loan for your association
Freelance writer David Mack
Assessment is the one word every condo owner despises – they come and go like a Midwest twister and leave condo owners’ wallets empty. Assessments are a fact of condo association life – they are necessary to deal with the ongoing upkeep of properties, but for trustees using assessments to correct budgeting mistakes is never received well. Here are some suggestions to consider when planning your annual condo association budgets to mitigate these risks:
Always increase condo fees
Condo Trustees like to win one over with the association by holding the condo fees flat from last year. Even if the costs of services from last year are flat or even decline, I feel a small condo fee increase is always appropriate. You can’t prepare for the unknown and inflation normally gains at a rate of 2% to 3% per year. So, if you don’t increase condo fees today, the correction curve will probably catch you later and the incremental “jump” is larger. So, even a tiny increase is better than no increase at all.
Have two plans instead of one in your annual budget
Make two condo association budget plans. One based on actual for the year plus a small percentage and an “upside” budget with a larger percentage for each line item. Vote to pass both the actual and “upside” budget plans and set condo fees according to the “upside” plan. On a quarterly basis, see where expenses are year to date. If you’re bringing in more money than you need mid-year, lower the condo association fees for the rest of the year and look like a condo trustee hero.
Don’t be fooled by Mother Nature and Energy Cost
Two things we can’t predict – the weather (at least North of the Mason-Dixon line) and price of oil and gas. Both are volatile and can wreak havoc on your energy bills. Make sure to have some financial padding in your budget for gas and oil - if these are condo association common items.
Consider a Condo Association Loan
A condo association loan (or HOA loan) is becoming more popular as a way to increase an association's cash position without having condo owners paying down large one-time assessments. At minimum, an association line of credit will position your HOA for times when cash is low - late condo fees, foreclosures, exepected property repairs...things of this nature. By the way - consider an HOA loan for capital projects.
At the end of the day – it’s up to you and your fellow condo trustees to try to budget properly, but I assure you no condo owner is happy with an unplanned “twister scenario” to their wallet, right around Christmas time.
Here are some creative initiatives you can take on with your condo association.
Leverage the Condo Association with Direct TV.
Maybe your property has a mix of cable and internet providers and can leverage group buying power through the condo association. If properly wired, Direct TV can have all residential units feed from one satellite dish, eliminating the satellite dish skyline and wiring mess in and on top of your condominium building. You have to call Direct TV’s MDU Division (Multi-Dwelling Unit) for this kind of deal. I think its worth checking out. Here is the link to the Direct TV MDU webpage Direct TV MDU.
Use a Condominium Association Credit Card
Pay condo association bills on time while helping with the cash flow by charging it. Go through the condo association vendor list and find out who takes credit cards. If your vendors accept credit cards, your association can rack some points over the year that can be redeemed at place like Home Depot for new community grill. If you’re a small condo association, American Express provides great financial reporting at the end of the year that will certainly help you keep the books.
Start Accepting Credit Cards
Your condo association can do this through most banks. This is a great way to collect total funds needed for larger capital assessments. It’s another way to increase your condo association’s cash flow and minimize accounts receivable.
Secure an HOA Loan
Regardless what your condo reserve or budget looks right now, every condo association should have one. The cost is nothing or minimal to open a line of credit and it’s becoming more acceptable practice for condo and home owner associations to use one. Current rates can be anywhere from 6.5% to 8% and associations usually have a choice of amortization schedules. HOA loans and lines of credits are usually secured by the right to assess condo owners.
Take your Condo Association on a Green Initiative
How can this be a bad thing? There is a plethora of content available on the Internet on how to go green, but basically it’s about energy conservation, which I’m sure we can all do greener. Maybe switch from oil to gas or other alternative energy sources, use faucets and toilets that use less water, put in energy saving light bulbs – they’re more expensive, but will last a lot longer.
Start a Condo Association Website
There are many different service providers that specialize in hosting condo websites and all you need to do is update it on a regular basis. A condo website will help raise the property value and enhance communications with condo owners.
Start your own Condominium Association Loyalty Program
This is interesting – I stumbled upon this the other day: www.condoperks.com. Evidently this service combines a community website with a shopping portal, where as condo association members make purchases at affiliated retailer, the condo association gets a percentage of the sales. Looks like its only available in few metropolitan cities right now and they’re still growing their business concept. They're definitely worth keeping an eye on.
A typical question I am asked is “what is required to be in reserve for an condo association"? Well according to the law it would be what is “adequate”. No offense to the lawyers out there but that seems a bit vague. Rightfully so.
There is not way to come up with a one system fits all formula. My opinion would be the more money in reserve the better. Associations should budget each month to put money aside for the future replacement of common areas and facilities. How much is determined by the size of the property and the amount of common areas that will need attention down the road.
The best way to determine this is to have a reserve specialist or engineer provide you with a reserve study. This study will determine the expected lives of your common area facilities. The heating system, the roof, the siding, the chimney, light fixtures, interior painting, etc. It will then apply future costs to each element and determine what needs to be put aside each year to meet these goals.
For smaller associations this can be cost prohibitive. Trustees or condo board members could develop their own version of a reserve study by obtaining pricing on the larger common area elements and adding a lifespan to them. I have seen many Board designed plans that have been very complete and accurate.
If the condo association is professionally managed, your property manager could assist in developing this type of study with the condo association board. Be prepared to pay an additional fee to the management company for this type of work since it is outside the scope of most contracts.
Get to know who lives at the property. This is important on many levels and could come in handy to do a self designed reserve study or other types of projects. You may have an engineer, architect, contractor, lawyer, accountant or one of many other professions that do not have time to be a condo association board member but are very willing to be involved on a committee.
How much should you have in reserve? You have enough money in reserve if you can address a common area or facility issue without having to implement a special assessment. That would be my definition of adequate.
In my state of Massachusetts, a Condo Association Replacement Reserve Fund is a separate and segregated portion of the common funds or the organization of unit owners which shall be used to replace, restore, or rebuild common areas and facilities.
In Section 10 (i) it states that "All Condominiums shall be required to maintain an adequate replacement reserve fund....." Section 10 (m) it allows on an annual basis for sixty seven percent (67%) in beneficial interest or more, may modify this provision.
If your association does not have enough in reserve for projects, consider an HOA Loan.
Scott D. Wolf, PCAM
President
Greater Boston Properties, Inc.
www.gbproperties.com
Last winter overextended the budgets of a lot of condo associations.
"In many cases, snow removal and heating will probably be over budget," said Brad Schneider of Condo CPA in Elmhurst.
Some money-minded condo associations took steps to counter these price pressures. "Some were creative and added an energy surcharge, which I thought was a good idea," he said.
Tim Allwardt of Aegis Properties in Chicago also highlighted energy costs as budget busters. "The current major impact that all buildings will be feeling is the energy crunch," he said.
"Last year, you could lock in [natural] gas prices at .75 to .80 a therm, but this year rates being quoted are .50 per therm higher," he said. "This will have a significant impact on high-rise properties that are currently struggling to make ends meet."
Generally, condo associations can expect to see increases from vendors in categories other than those related to the price of utilities and gasoline. "In calling vendors to see if there will be an increase for 2009, most are saying yes," said Tracy Davis of McGill Management.
"The financial pressure on Chicago condo high-rises from the ongoing facade inspections have continued to have a serious impact on many buildings' ability to stay financially solvent," said Allwardt. "As if the cost of this is not significant in and of itself, on top of it you have the life-safety work that needs to be completed by 2012, and major increases in natural gas." Associations have been forced to borrow money and regularly special-assess to cover these mounting expenses.
Allwardt, whose firm manages primarily Chicago buildings, indicated that multiple foreclosures can have a devastating effect on an association's budget. "I haven't seen it as critical yet, but this certainly can change with a long-term mortgage crisis," he said.
Schneider has found the same true by the lakefront. "Most of the condo associations along Lake Shore Drive do not have huge problems with foreclosure," he said. "Some of the properties in the suburbs have experienced high rates of foreclosure."
Schneider recommends that condo associations faced with the problem of multiple foreclosures estimate what their bad debts will be and cautiously include that income loss in their budgets to be covered by higher assessments. Hopefully, that will not be too much of a strain on the other owners.
By freelance write, David Mack.
Many associations are facing rising operating costs, which are likely to necessitate increasing assessments beyond an anticipated amount in 2009. Under normal circumstances, a forward-looking association will usually augment assessments annually.
"Boards are encouraged to raise assessments at least 3 percent each year," said Tracy Davis, a property manager and marketing director with McGill Management, based in Arlington Heights. When associations are consistent in this action, separate assessments can generally be avoided. Davis conceded that some boards may wait two years to bump up the monthly levy.
But there are board associations that maintain assessments at a constant level despite rising expenses.
"One we work with did not pass an increase in the operating budget for 12 years," said Brad Schneider of Condo CPA in Elmhurst.
This board kept drawing on its reserve to pay bills until finally the account was depleted. Finally, the directors had to draw up a realistic budget document that jacked up assessments substantially.
"In the past several years, many associations have had to increase their assessments significantly more than the average increase of 3 to 5 percent," Schneider said.
Some did so because of developers who had advertised low, inadequate assessments for marketing reasons. Most were forced to do so as the result of dramatic increases in certain expenses, such as utilities and insurance. Schneider particularly underscored the huge rise in fuel costs in 2006 and electricity charges in 2007.
Let's focus now more closely on growing expenses and what continuing impact they can be expected to have on association budgets and assessments.
Many firms that are heavily dependent on vehicles in the services performed for associations notified customers of an upward price adjustment for their higher gas costs, according to Tim Allwardt, President of Aegis Properties in Chicago. "Several companies [added] a fuel surcharge for travel, particularly scavenger companies," he said.
The same has been happening at some of the properties managed by McGill.
"I had a landscaper send a notice stating that they [would] be adding a 5 percent fuel surcharge to our monthly bill," said Davis.
The cost of paving maintenance has also risen substantially this year due to the cost of oil.
"Seal-coating of parking lots and asphalt repair have had a huge increase," said Allwardt. "I have seen 40 percent increases over last year's pricing. There is a real concern that the price will continue to increase."
By free-lance writer David Mack
speed14@urbancom.net
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Who pays for common area charges and how?
Some condo association members feel they are constantly over-assessed for everything from common area repairs to renovations. On the other hand, the association often doesn't have enough cash in reserves to cover any of these costs, but feel its in the HOA's best interest to take on these projects.
In a perfect world, the condo association board has designed and implemented a budget that is able to fund all operational costs along with any projects envisioned for that fiscal year. As we all know this is often not the case. This can leave the association in a bind with ill-will from condo owners who feel they are getting an unjust assessment because the condo association didn't plan properly.
The best solution to pay for these common area charges is always to take from the operating or reserve accounts - if there is enough cash. Otherwise, the best funding alternative today may very well be an HOA loan for 100% of the project cost or a mixed funding solution of debt and assessment. This hybrid approach may be the best way not to make condo owners feel the pain of writing one large check. The payments of a loan can be incorporated into condo fees moving forward and a loan can always be paid of ahead of time.
How come we're not all paying our monthly condo fees by credit card? Between the condo fees and assessments that I have seen over the past couple of years in my condo association; I would have had enough rewards points for a trip or two to Maui.
Although credit cards are not normally offered by property and community association managers, ACH payments are readily available. ACH stands for Automated Clearing House - the standard for automatically drafting funds from your bank account. I cant imagine credit card payments being too far behind ACH in their acceptance. As we get closer to a paperless society, electronic payments are inevitable. Especially for the larger repeating payments in our lives, like condo fees.
I just don't think the community association industry has accepted credit cards as a acceptable payment method yet. In a couple of states, credit card payments may be an issue - as service charges are illegal on condo fees, The average credit card processing fee is about 3% with a nominal transaction fee as well, which is usually about 30 cents or so, depending on the size of the transaction.
Credit Card Processing services may be available for your HOA or Condo Association. You pretty much just have to go looking for it and make sure its not an issue in your state.