Home Buying in 53154>Question Details

Docter, Home Buyer in 53154

If I buy a condo and the association fee reserve is only $3,000 total in a 8 unit private complex with condo fees of $150. Only $15 goes to the reserv

Asked by Docter, 53154 Tue Feb 9, 2010

reserve on a 15 year old condo. Should I stay away?

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Hello Docter and thanks for your question.

How very astute of you to realize that a 15 year old complex should have marketedly more money in their reserves than the $3000 currently in the bank. Further, you've also spotted that at $15 per unit per month contributions to the reserve allocation or a whopping total of $1440 per annum, the Association doesn't stand a chance of keeping up with the costs associated with an aging building.

Often I find that smaller homeowners associations tend to ignore the recommendations of specialists and employ a "pay as you go" attitude for repairs to the community--this in an attempt to keep the monthly dues lower. Thus, a roofing replacement, which is likely to take place in the next 5-10 years and will cost, say, $20,000, may need the contributions of all of the owners to make up the difference between the $20K roofing fee and the $10K in the reserves when the repairs are needed. Keep in mind that at 15 years of age, the community is next up for painting (done at least every 5-7 years), gutter replacement (every 20 years), wood trim and member replacement (every 20 years) and, if there are any decks or upper level patios, these usually also require replacement at the 20 year mark. I sincerely doubt that the $3000 in the reserves plus the $1440 annual contribution yearly over the next 5 years will be adequate to pay for these upcoming, and rather expensive, repairs.

So, even without looking at the financials or the reserve study, as a HOA manager, former accountant, budget expert and consultant, my suggestion would be to skip this one. Again, very brilliant of you to spot ths one!!

Sincerely,
Grace Morioka, SRES
Area Pro Realty
HOA Consultant, Co-Author "Homeowners Associations: A Guide to Leadership and Participation"
0 votes Thank Flag Link Tue Feb 9, 2010
The real question is how the property maintaned and how often they have been doing updates. The next issue is do they have a schedule of the updates and work to been done. Ask for the budget on up and comming expenses. The only exenses that will be paid by the hoa is what is detailed in the condo documents and on a 8 unit condo there will be little common area for work to be done. The items that might be of interest to ensure a large investment would not be required or a special assessment required are: How is the roof, siding, does the complex need painting, how is the landscaping, how is the parking area, and the hall ways. This assumes the heating and hot water is paying for their own utilities (utilities not in hoa dues).

A hoa is like a small business and it can be managed well or poorly. Just understand what you are walking into.


Keith Manson
First Weber Group
Certified Distressed PRoperty Exxpert
Metro Milwaukee

http//www.milwaukeebailout.com
0 votes Thank Flag Link Wed Feb 10, 2010
A review of the BUDGETS (several years) and inquiries to the association will give you a better idea as to what's going on. They may not expect much that needs to be budgeted or they may just be doing the statutory minimum. Maybe they just paid out a big sum for something. More questions need to be asked to determine if there should be more concern. Some associations may prefer a low reserve and rely on a special assessment if necessary.
0 votes Thank Flag Link Tue Feb 9, 2010
8 units x $150 per month x 12 months - $14,400 a year. With a HOA that small you should have a pretty strong voice in deciding how much money is set aside for emergency / reserve.

If the reserve balance is only $3000 at this time you may want to inquire as to where the money has been spent recently.
0 votes Thank Flag Link Tue Feb 9, 2010
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