The first major project a few years ago was the swimming pool, which everyone says, was leaking heavily and earning us monthly water bills of $1,000 or more. It was fixed and complete rehabilitated for nearly $80,000. The Homeowner's board borrowed the money under a six-year (maybe seven - I wasn't around) loan. It meant the board could repair the pool and preserve its reserve money (which wouldn't have covered the repair bill) BUT meant we'd pay about $1,100/month for the term of the loan. Monthly dues collections were enough to pay the note and homeowners weren't slapped with an assessment.
This past summer, the clubhouse reached the point of maintenance need that we could wait no longer. If you ever walked in that building in recent years, you could smell what I'm talking about. Over the course of six to seven regular board meetings, we solicited bids, authorized renovations and repaired the clubhouse. Thank goodness our old pool loan was 80% paid. We borrowed again - about $63,000. $15,000 dollars (est) paid off the old loan and left us with about $48,000 to repair the clubhouse. It basically refreshed the loan for another 6 years at $1,100. No assessment, again.
So, we've had two major rehabilitation projects successfully completed in the past five to six years - repairs that could hold up for several years beyond the loan's life if we're diligent about maintenance. We also have reserve money that's very slowly building up. Our monthly dues mainly cover operational costs so we're not piling in the money towards the next repaving of walkway or other maintenance projects that really are much more extensive than average maintenance.
There is an opinion that we trim extraneous spending on nearly everything that isn't near-emergency or outright emergency in order to build that reserve fund. I interpret that to mean that we keep enough money to pay 100% cash for most projects and forgoing any multi-year debt. We have the $63,000 in debt due to the recent loan. We have plenty of cash flow to handle that payment and everything else but we don't have $63,000 sitting in our reserve account in cold hard cash. The argument is that since we have more debt than cash in reserve, our reserve fund for capital maintenance is negative dollars.
Is there anything wrong with carrying debt you can manage and debt that prevents you from losing "nest egg" cash? Nope.
Is there anything wrong with collecting cash and trying to avoid floating ANY debt for repairs? Nope.
It's philosophical outlook and it's debates like this that we engage in at our monthly homeowners' meetings on the second Tuesday of every month. Whether we like it or not, there will always be plenty of bills to pay regarding our HOA.
The fact on our finances is that borrowing money to cover big ticket repair bills has prevented ANY assessments which would've collected the total cost but hurt all homeowners like heck. We've been fortunate to NOT have very expensive projects AND a high debt load. If something truly big hits before we seriously pay down our existing loan - cash will be king and I'll NOT be looking forward to that meeting. But, that hasn't happened.
We're beginning our work on a new landscaping contract............those are not cheap.
KMc
1 comment:
Sorry for the delay in the reply.
Our economy has gone on for quite some time living on leverage. We now seeing the aftermath. It is all well and good to say that things have been fine up to now. But, in these times, I think we have exhausted our credit. Our cash is limited and could not withstand another pool or clubhouse expenditure. Somehow we thing swe can anticipate these major expenditures, but we never do. We have always gone on the premise that we can just go deeper into debt.
If we have another major expenditure. We will have to have a major assessment, in the middle of a recession! It is time to stop acting like Wiley Coyote running on thin air off the edge of the ledge. Financial planning based on a house of cards is great, until it isn't.
Kevin
Post a Comment