HOA Crystal Ball by Richard Thompson
Thursday, September 02, 2010

It doesn't take a fortune teller to predict that common elements are going to wear out and it doesn't take a crystal ball to predict that HOAs are going to need money and a plan to fix them. So why do so many HOAs fail to properly plan for these predictable events and expenses?

The truth is that too many HOA boards are busy putting out this year's financial fires and haven't the time to think about next year and beyond. Remember, "it's hard to drain the swamp when you're up to your behind in alligators". In other words, it's easy to lose track of long term goals when you get sidetracked by more immediate demands. Putting out fires is what HOAs do, right? The poorly run ones seem to do just that.

HOAs are no different than any other business. Those that are successful engage in long range planning. Those that fail to plan fend off disaster after disaster and board members come and go through a revolving door. No real magic here. To know where you are going, you have to have a destination in mind. In spite of bumper sticker wisdom, those that wander really are lost.

So back to the HOA scenario. When a homeowner association doesn't have the funds to handle a major repairs, they defer those repairs until the funds are available. Of course, money doesn't grow on trees and without a plan to collect more money, band-aiding and deferring become the default reality and slippery slope.

How do you steer your HOA back up to high and stable ground? The first step is to review your reserve study. "What's a reserve study?" you say. A reserve study identifies all common element components that have useful lives between 2 and 30 years like the roof, fences, decks, paint, paving, etc. The average condominium has 15-30 components. The average high rise condo can easily have 100. And HOAs that own golf courses and marinas can have many more. Regardless, a reserve study is customized to the HOA in question.



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