CREATING A COMMUNITY ASSOCIATION FINANCIAL PLAN
One of the greatest concerns HOAs face is feeling like they are prepared for the next major project. Whether it is repaving roads or fixing a water pipe, it will cost members of the board valuable time and potentially require the association to find financing. No one likes to deal with maintenance or improvements. Property Managers can help, but all the big decisions are left up to the board to decide. The best way to lighten your burden is to develop a sound community association financial plan and set savings aside in a properly funded emergency fund.
MAINTAINING A DEVELOPED PLAN
Though a lot of organizations take minutes at board meetings, pay for reserve studies, and plan for maintenance, there is a good chance that board members may change by the time the problem occurs. Like any board, it is difficult to maintain the same people over long periods of time. Plans become outdated and you are left trying to fix complex issues that potentially could have been avoided with better documentation and planning. Discussing concerns two or three times throughout the year can save you countless hours of unwanted headaches.
HAVE AN EMERGENCY RESERVE FUND
No matter what maintenance issues your association faces, they can always be mitigated by the creation of a well-funded emergency (capital) reserve fund. In addition to being a legal requirement, it is also a fiduciary responsibility of the board to maintain such a fund. Capital reserve funds are a critical piece to every solid community association financial plan. Having cash on hand may save your organization from needing financing. This could also lead to more time being spent on the project and having to pay off a loan by making a special assessment. Though institutions like Continental Bank are able to finance such projects, it is usually simpler and more cost-effective to just have money already set aside for such occasions.
ALLOW YOUR RESERVES TO PROTECT YOUR ASSOCIATION’S FINANCIAL FUTURE
Having money set aside for a rainy day is always a good idea, the one problem is watching your money sit in a low interest-bearing bank account and lose value over time from inflation. Since community associations are unable to invest money, it often can feel like your money is trapped. However, there is a financial product that allows you to earn higher interest over time, meet regulatory requirements, and be protected by FDIC insurance. They are called Certificate of Deposits (CDs).
CDs are bank accounts like checking or savings accounts, the only major difference is that they earn a higher interest rate because they require leaving money in the account for a certain period of time (called a ‘term’). Since the money’s primary purpose is to protect the association from potential financial distress, keeping the money in the higher interest-bearing CD account can be a huge benefit.
Though some HOAs may be able to put money away for years at a time, it may be a difficult commitment for others. A nice alternative is a Liquidity Certificate of Deposit. This type of CD allows the association to pull any, or all, of their money out of the account at any time during the deposit period without having to pay any early withdrawal penalty. Continental Bank offers much higher-than-average interest rates for both types of CDs.
By taking these precautionary steps for unanticipated situations or expenses, your association can feel better prepared for any unexpected projects that they face.
