HOA/Condo Governance Issues

[Zoocat]

If the HOA's finances do not stay strong I will have no one to blame but myself.

I wouldn't say that is necessarily true, since the other members of the board have a vote as well, and also the board needs to be responsive to the other homeowners and they can be very persuasive when not happy. So, IMHO, if you own a home that has an association there's a certain amount of control that you give up.

 

[Gotadimple]

Please help me understand this tax aspect. Are all the receipts of the HOA/Condo Assoc considered income, and taxed? Or just the earnings on reserves? Are rates comparable to individual rates, or more a corporate rate? Is the tax rate progressive, such that a large association will pay a greater proportion in taxes, even though the reserve earnings per association member may be no larger?

This thread begins to sound like another argument for renting.

Ha

Earnings on reserves are taxable. Monthly dues are considered exempt function income. The calculation of tax due on earnings is
total earnings on reserves - allowable expenses (such as bank charges, business license) - $100 * .33

So 33% of the net earnings are paid to the government as tax, regardless of the size of condominium -- a flat tax. Unless an association is reserving millions of dollars this should be a reasonably small amount to pay in light of the entire expense budget.

I live in an 8 unit condominium, our annual expense budget including special projects is around $12,000 per year, and we paid the IRS $71 in 2010. We have a 30 year reserve analysis and we are sufficiently funded to cover our expenses.

A reserve analysis identifies the useful life of the buildings and grounds and estimates the cost to replace equipment and maintain the buildings -- it doesn't mean that today you have all the $ in the bank. Just that you have a plan to accumulate $ over time.

 

[Brat]

Haha, maybe you should check with Gotadimple. She has a well managed condo assn.

 

[haha]

Thanks Rita and Grumpy, this helps me understand much better.

Ha

 

[Nords]

I have been living in a community governed by an HOA for 5 years. I was recently appointed chairman of the association's finance committee. I found myself wondering how many of the RE members reside in HOA's/Condo associations and whether a thread on association financial issues (e.g. assessments, replacement reserves, budgeting, etc.) would be of interest.

One issue I have been dealing with is finding enough banks with decent CD rates to allow for laddering of our reserves without exceeding the FDIC insurance limit at any one bank.[/QUOTE]
We have 14,000 residences in our home's HOA. Our community HOA is so "big" that they have over two dozen groundskeepers on the payroll and their own plant nursery. There are seven recreation centers (four or five with swimming pools) and an office building for the clerical staff. A half-dozen employees spend their workweek driving around the community to check bylaws compliance and still only drive by each home once or twice a year. It's not an HOA, it's a full-time business. Of course the bureaucracy is impressive, as is the red tape. However the board's talent pool is fairly deep and little Napoleons don't get re-elected very often.

OTOH our rental's HOA is so apathetic that the bylaws were recently amended to allow the bylaws to be amended whenever the "Yes" votes outnumber the "No" votes with just 35% of the total number of possible votes. ">50%" was an unachievable threshold.

I find the rental's HOA a lot easier to deal with than our home's HOA. It's one-third the price, too, for not much difference in services.

 

[Meadbh]

I've reread this thread because my next home is a condo. Very valuable info lies herein! I am planning to take an active interest in the strata association. Here's what I want to avoid: the condo building from hell:

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Al, this really IS a tiny URL LOL!

 

[scrabbler1]

Actually I live in a co-op but we have many of the same issues.

It is important that the building have a reserve study and an inspection of the structure/common areas regularly. What kills a building is deferred/ignored/unknown maintenance issues and failure to save enough money in reserves to replace what will eventually wear out.

I live in a co-op, too. We have plenty of issues with the maintenance and upkeep of the buildings, grounds, and common areas, as well as the financial upkeep such as the reserve fund and property taxes and mortgage refinancing.

Thankfully, we have a good Board, maintenance staff, and managing agent who all work well together. I am not on the Board, but I work for them at our annual shareholders meeting. I am on good terms with the managing agent who, like the Board, take my concerns seriously even if they don't agree with everything I tell them.

 

[SteveL]

Our HOA has around 4000 residences. Fortunately, we do not own any recreation facilities, and the roads are owned by the city. Here in the Pacific North Wet, we own most of the drainage in our two square mile area. Our dues are much lower than most, less than $400 a year. Our big risks come from drainage including a dam and fish ladder. We own about 200 acres with 13 miles of trails.

WA just passed a new requirement for HOA to have a professional reserve study and funding. Condos have had this for years.

There are numerous HOA around here. Many want to merge with us, because with only 50 to 100 homes, they are really not governable. In order to enforce the covenants, you have to be able to bring a lawsuit. Small HOA do not have the funding to allow for this, and thus there are many inactive ones in this area.

We operate our HOA with a paid manager, one clerk, a small security unit (one car on duty patrolling), and a five person maintenance staff that expands somewhat in the summer. We control finances by having two board members sign checks, and we have an annual CPA audit.

Our Declarations restrict investments as does the state law, to banks, and we too have issues with cd rates and FDIC limits.

Getting liability insurance can be a problem even if you have never had a liability claim in over 30 years of operation.

 

[clifp]

Very timely thread. I am off next week to Las Vegas to look for rental property. In all likely hood I'll be purchasing a condo or townhouse with HOA.

Now all of the books, I've read and internet blogs I've read say it is very important to get and read a copy of the HOA CCRs, the board minutes and the finances of the association. Especially in a place like Vegas with a ton of foreclosures I am sure this is good advice.

However, what nobody says is what the heck should I be looking for while reading these documents? Obviously if I read that Tom, Dick, Harry and Sally are all suing the HOA that is bad sign. But what else?

 

[Brat]

Is there a reserve study, does the financial report reflect that the recommendations of the reserve study are followed. You indicate you want to rent your unit, is there a limitation on the % of rentals and how 'full' is the % (perhaps make your offer contingent on Board approval of rental status). Don't overlook a property inspection. Others can add to the list..

Frankly I am not a fan of buying property where there is a HOA for rental purposes unless you really know the HOA back story. Housing constructed during the bubble is likely to have a boat load of construction defects, tying yourself to decisions made by others can complicate your life.

 

[Webzter]

Is there a reserve study, does the financial report reflect that the recommendations of the reserve study are followed. You indicate you want to rent your unit, is there a limitation on the % of rentals and how 'full' is the % (perhaps make your offer contingent on Board approval of rental status). Don't overlook a property inspection. Others can add to the list..

+5. Also, our HOA wanted to approve all leases and wanted them to be at least 12 months in length.

Maybe also look for special assessments and a swag at if there's an issue with deferred maintenance (HOA has a pool but you don't see a budget for pool maint)

 

[kcowan]

Also a history of changes to the rules. Sometimes HOA management make dictators look flexible! Have there been new rules added? How often? Are there limitations for what can be on your balcony? The types of curtains/blinds used? Restrictions on use of parking area. Rules re visitors to your unit? e.g. access for your housekeeper, extra keys.