No matter what type of association you may be a member of, ALL community associations require some type of management. Some associations are successfully managed by volunteers while other use part-time professionals. And still others need to find full-time, on-site management.
Once its been decided to use a management company, the association/ board needs to be ready to invest time to develop this process.
The Board must determine which services provided by a management company an association would like: how many meetings, who is taking minutes, on site inspections, outside services (cleaning, maintenance... support personnel needed). The bid specification is critical as with any major project, the board must ensures all bids are "apples-to-apples."
The section process including developing a request for proposal, finding candidates, scheduling an initial meeting, checking references, analyzing the data and making a decision.
An association should never hire a management company based on price alone. It's important to hire a company that has a strong knowledge of community associations and the ability to work through complex problems. Make sure to find a company that can provide the community with solid managerial leadership.
Sunday, April 24, 2011
Tuesday, February 22, 2011
Real Estate News
Understanding Landlord Insurance
Turning your home into a rental or buying an investment property? Expect to pay up to 20% more for the right insurance policy to protect your property. Read
Condo Rental Restrictions: How to Limit Rentals to Keep Your Condo Value Up
If your condominium doesn’t have a rental cap, your unit’s value could fall. Add a condo rental restriction in one of two ways: easy and risky or tough and expensive. Read
The Costs of Renting Out Your House
Renting out your house can be a smart financial move, as long as you calculate your costs carefully. Read
Facing Foreclosure: What to Do Right Now
If you’re facing foreclosure, don’t panic: Take steps right now to save your home or at least lessen the blow of its loss. Read
Monday, February 7, 2011
Buying a Condo- A Financial Review
February 4th, 2011
By Ryan Southwick, Lakes Property Management and Southwick Group Real Estate
Buying a condo in today's market has a lot of risks but several rewards. Today, we will discuss what to look for in an associations financial statements. We will also be creating other blogs on: governing documents, resale value, insurance, rentals and trend analysis.
Condo Financials... Let’s start slowly here-
Item 1.
Is the property self managed or professionally managed?
A professional property manager (typically) has the knowledge base, software, and time to provide current and accurate financial data. I am a strong advocate of having a professional property manager to reduce supplier costs. A property manager can also reduce annual contracts.
Item 2.
Do they have a capital reserve budget?
A capital reserve budget is a funding account (separate account) in which the association plans replacement costs over a period of time, "similar to" a savings account. A capital reserve plan is critical to an association’s success. The point of this plan is to set aside enough funds to replace large association elements over a period of time. Such items can include: roofs, siding, chimneys, pool, pool components, monuments, signs, lighting, roadways, etc...
Some basic formulas associations use are: a complex that is 1 to 10 years old, the reserve fund should have 10% of the cost of the replaceable items. Between 10-20 years old, the repair fund should have 25-30%. At 20 years, that amount should be 50% or above.
Item 3.
Assuming they do have a capital reserve budget- Is their a Capital Reserve Study to determine what amount per year/month to fund? Also, who developed the Capital Reserve Study?
I suggest that an independent firm complete the Capital Reserve Study. This way you have a group (suggest engineers) to complete a physical review of the property and determine remaining life and costs. This data will create a financial plan of exactly what income should be set aside per year to cover these assets.
Item 4. HOA FEES.
How do the homeowner’s association fees or (HOA) assessments compare to similar nearby communities? Are they too high or too low?
Keep in mind that developments with pools, clubhouses, gyms and piers may have higher maintenance and liability insurance costs. Additionally, high-rise buildings have more complex mechanical systems (elevators, HVAC) that will require extra reserves and maintenance fees.
The HOA fees should be comparable to similar communities. If not might be cause for concern.
Okay, now that the basics are done what should you check next? Income: who is paying and who is NOT!!!
Item A.
What is the number of unit owners with aged receivables? What is the percentage of non payers? Does the association plan (in the budget) that a certain percentage won't pay their dues?
Personally, I would be concerned to a purchase into an association were over 5% are not paying their dues. Frankly, I'd like to see the max percentage at 2-3% for a larger association (50 units or more) and that's in a poor economy. Reason being the remaining owners are paying additional funds for each non-payer.
Item B.
How many foreclosures does the association have going on?
I'm a strong believer of getting the non-payers out, having the association put an owner in foreclosure and having a new owner come in and pay the HOA association dues.
However, if you find that there are several units in foreclosure, I'd be very concerned. What will happen to property values? When will the bank pay for the assessments? Will they pay the back assessments (not likely)?
Now lets look at expenses?
Item I. When looking at the budget versus actual, where are the overages? Are there any?
I'd take a little time and examine where the increase in costs come from. TYPICALLY, the costs should be consistent over a period of time. I would just plan to spend a little time and review. Questions should be brought up to the association treasurer.
Item II. Do they have a separate category for "Major Repairs and Improvements"?
It is recommended to separate these "one time" expenditures for items such as "landscape improvements, structural improvements, engineering,..." I would spend some time and review these costs.
I hope this blog has given you some financial understandings of associations and the purchase of a condominium unit. Please follow our blog to receive additional information on the purchase of condominium units and real estate.
You can also visit our websites at: www.SouthwickGroupRealEstate.com and www.LakesPropertyMgt.com
By Ryan Southwick, Lakes Property Management and Southwick Group Real Estate
Buying a condo in today's market has a lot of risks but several rewards. Today, we will discuss what to look for in an associations financial statements. We will also be creating other blogs on: governing documents, resale value, insurance, rentals and trend analysis.
Condo Financials... Let’s start slowly here-
Item 1.
Is the property self managed or professionally managed?
A professional property manager (typically) has the knowledge base, software, and time to provide current and accurate financial data. I am a strong advocate of having a professional property manager to reduce supplier costs. A property manager can also reduce annual contracts.
Item 2.
Do they have a capital reserve budget?
A capital reserve budget is a funding account (separate account) in which the association plans replacement costs over a period of time, "similar to" a savings account. A capital reserve plan is critical to an association’s success. The point of this plan is to set aside enough funds to replace large association elements over a period of time. Such items can include: roofs, siding, chimneys, pool, pool components, monuments, signs, lighting, roadways, etc...
Some basic formulas associations use are: a complex that is 1 to 10 years old, the reserve fund should have 10% of the cost of the replaceable items. Between 10-20 years old, the repair fund should have 25-30%. At 20 years, that amount should be 50% or above.
Item 3.
Assuming they do have a capital reserve budget- Is their a Capital Reserve Study to determine what amount per year/month to fund? Also, who developed the Capital Reserve Study?
I suggest that an independent firm complete the Capital Reserve Study. This way you have a group (suggest engineers) to complete a physical review of the property and determine remaining life and costs. This data will create a financial plan of exactly what income should be set aside per year to cover these assets.
Item 4. HOA FEES.
How do the homeowner’s association fees or (HOA) assessments compare to similar nearby communities? Are they too high or too low?
Keep in mind that developments with pools, clubhouses, gyms and piers may have higher maintenance and liability insurance costs. Additionally, high-rise buildings have more complex mechanical systems (elevators, HVAC) that will require extra reserves and maintenance fees.
The HOA fees should be comparable to similar communities. If not might be cause for concern.
Okay, now that the basics are done what should you check next? Income: who is paying and who is NOT!!!
Item A.
What is the number of unit owners with aged receivables? What is the percentage of non payers? Does the association plan (in the budget) that a certain percentage won't pay their dues?
Personally, I would be concerned to a purchase into an association were over 5% are not paying their dues. Frankly, I'd like to see the max percentage at 2-3% for a larger association (50 units or more) and that's in a poor economy. Reason being the remaining owners are paying additional funds for each non-payer.
Item B.
How many foreclosures does the association have going on?
I'm a strong believer of getting the non-payers out, having the association put an owner in foreclosure and having a new owner come in and pay the HOA association dues.
However, if you find that there are several units in foreclosure, I'd be very concerned. What will happen to property values? When will the bank pay for the assessments? Will they pay the back assessments (not likely)?
Now lets look at expenses?
Item I. When looking at the budget versus actual, where are the overages? Are there any?
I'd take a little time and examine where the increase in costs come from. TYPICALLY, the costs should be consistent over a period of time. I would just plan to spend a little time and review. Questions should be brought up to the association treasurer.
Item II. Do they have a separate category for "Major Repairs and Improvements"?
It is recommended to separate these "one time" expenditures for items such as "landscape improvements, structural improvements, engineering,..." I would spend some time and review these costs.
I hope this blog has given you some financial understandings of associations and the purchase of a condominium unit. Please follow our blog to receive additional information on the purchase of condominium units and real estate.
You can also visit our websites at: www.SouthwickGroupRealEstate.com and www.LakesPropertyMgt.com
Wednesday, October 21, 2009
Did you know that 90% or more of the oceanfront condos in the Myrtle
Beach area are not hotel rooms, they are privately owned condos? It’s
true. Doesn’t matter if they are newly built within the last several
years or resorts dating from the 1970s most of them aren’t hotel
rooms in the sense that a hotel owns them.
To the average person renting one for a vacation this doesn’t really
matter very much. As far as they’re concerned a room is a room. It
does matter to people who want to purchase one for their use or as an
investment. Why? Because banks who lend the money to buy them
have a special term for these places: Condo-tels.
A condo-tel is a condominium building (usually oceanfront in the
building has certain characteristics not found in other condominium
buildings. Some golf course condo communities also fit this
description. These characteristics include:
• A front desk for rental guests to check in.
• Housekeeping service for the rooms.
• Restaurants and bars.
Hotels offer the same things. If these features are on-premise the
building will almost always be labeled by banks and mortgage lenders
as a condo-tel. Why does this matter to buyers?
Because mortgage lenders don’t like to lend on these properties these
days. Back during the big real estate boom the lenders were more
than happy to lend huge amounts for these units. The incentive for
the buyer was to buy the unit, take out multiple mortgages on the
property (often up to 120% of the value of the unit) and then flip it to
someone else. The new buyer paid up to cover the mortgages, pay
the seller a tidy profit and then hoped to do the same thing
themselves. And so it went for several years.
This speculation in real estate is one the main reasons for the big run-up in prices here. When
the good times came to an end and the owners left holding the bag (or
mortgages. Immediately the lending market for condo-tels collapsed.
So now very few lenders will take a mortgage on oceanfront condo-
tels. If you’re in the market to buy an oceanfront unit (whether you
intend to rent it or not) you will be hard-pressed to find a lender to act
on it.
Lenders that will lend on condo-tels will usually require the following:
• A minimum of 20% cash down payment from the buyer. This is
a minimum; don’t be surprised if you’re asked to put up to 50%
down. Banks want to make sure you aren’t going to walk away
from the mortgage commitment in the future.
• Excellent credit. No getting around it.
• Provable income. The days of ‘stated income’ loans are over for
most people. Some lenders will still do this but usually only for a
borrower with substantial assets that can be seen and is an
existing client of the bank.
Each lender has specific requirements but these are a good rule of
thumb. Also, don’t be surprised if the loan is denied even if you meet
all of the guidelines at the beginning. Quite often banks kill deals in
underwriting because they have a general uneasy feeling, even if you
and the property meet all of their guidelines. They’ll delay until your
purchase contract expires, ask for review appraisals, demand more
money down, etc. I’ve seen more than one deal fall apart just before
closing because the bank didn’t want to make the loan and found a
way out.
Your best bet for buying a condo-tel is to pay cash. If you’re paying
cash and can close quickly you’ll get a better deal from the seller. If
you can’t pay cash have everything the bank wants up front and get a
letter of pre-approval before making any offer on the property. Don’t
accept a letter of pre-qualification. Only accept a letter of pre-
approval that demonstrates your loan request has been fully
underwritten and is subject only to the specific property.
And, most important, use an experienced Realtor. A Realtor who is
representing you will have your best interest in mind and can help
keep the deal together and get you the property of your dreams.
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