Condo Association Management Blog

Both are tricky issues and here is why.
1. Most condominium documents stipulate the utilities that an association can pay for and since the documents are outdated internet, broadband and the current list of things we have will continue to change quickly. The other side of the coin is that homeowners taste change and homeowners ability to change options frequently capturing better deals with competition. If the association were to enter into a long term agreement in an area that is changing rapidly then in a short period of time homeowners could be stuck with obsolete services that are cheaper and better someplace else. Example - why do you think direct TV is getting so inexpensive? Because in a short time the dish will be the size of a quarter and the current dish "finance" today will advertise to buyers "WE GOT RIPPED OFF" as you are paying it off for the next six years, but the monthly service is cheap. So are buggy whips but nobody uses them anymore either. A good management company would be doing the following. Staying on top of what is currently offered in an HOA's area. Know the field and advise the HOA on how things are evolving and therefore not letting decisions be made on what is available today - rather, how best to be prepared for tomorrow. At Krason Management, our portfolio consultants don't spend their day putting out fires they are trained to avoid the fires and be in a position to best handle a changing atmosphere. We managed condos before computers and fax machines and we will be managing them when they are obsolete too, but our clients will hear from us what is coming and not the other way around. That is the job of a good consultant. So the answer is rely on your resources and demand a plan. 2. As for the roof deck stay away from the rental. The roof deck is an amenity that the building offers and the liability would never outweigh the benefits and the cost of repairing your deck. Check the cost of liquor liability insurance and you'll turn the idea down flat. However, don't give up on making money on the rooftop. Most managers are too lazy and don't know how to turn rooftops into dollars. Some will even tell you it's "impossible" since that is slang for "I really don't know". If you are not making money on your rooftop now or you are not putting yourself in a position to do so soon then you are not getting the consulting from your manager you are paying for currently or in the past. It is the not the job of an HOA volunteer to do research it's merely his or her job to read what the management company presents and be excited to see a plan to maintain current costs, reduce future out of pocket fees and stimulate un-tapped resources the HOA may have. Don't settle for what is going on today, sometimes yesterday, rather demand a plan that guarantees a future that captures the full value of your investment while limiting the risk of loss due to outdated, inefficient services that don't allow your investment to market itself as "state of the art". Be an end user and learn how to become one by learning what is coming not what is available today. Brian Krason, Brian Krason Management

For those interested, this is the link to Direct TV's MDU (Multi-Dwelling Units) Division. They deal with condo associations and building managers.
www.directv.com/DTVAPP/global/secondaryIndex.jsp?assetId=1400044

An often overlooked income source for Associations is their Reserve Fund income. A well managed reserve fund can substantialy increase their investment income with no additional risk. One simple example is to have CD(s) laddered up to the month of the Reserve fund expense. In some cases this is 6 months of additional interest income.
Examples of CD ladders tied to reserve expenses can be seen atwww.reserveinvestmetns.com

Any thoughts on reserve minimums a condo association should have in place?

My thoughts of the reserve fund have always been and will remain ones that I am very passionate about and unyielding. The MA 183A law is too vague on this issue and in my professional opinion there is only one answer and it is much less ambiguous. For any property a simple chart of all of the capital items the "trust" owns is where to start. Any management company can prepare this list in less than an hour. The difficult part comes next. A current value on all of the items listed as well as expected lifespan. It is important to use the current value. Now the lifespan should be adjusted based upon current "Routine Preventative Maintenance" being done. If the property, or management company, is doing no PM then the lifespan should be adjusted down. Now calculate the number of years until replacement and divide the replacement cost for each item and run your totals. The average condominium is not saving near enough to support the replacement so the answer is one of two things or both. Unreasonable fee increases and supplemental assessments. Management Companies typically take the easy way out and don't do this chart since it will inevitable support small increases and it is easier to say "we are doing a good job by keep expenses down". Then when it is time for assessments they use the argument "the board did a lousy job"! When the board is overthrown they tell the new board it was the old boards fault and it starts all over again. The only way to avoid this pitfall is know your capital items and save accordingly.

As for investing current reserve - I suggest the following. Open four CDs. One for 3 months, one for 6 months, one for 9 months and one for 12 months. There are companies (not banks) that will give you the 12 month rate on all four.By having some funds available and others less available but putting money away every ninety days it helps the trust be disciplined.

Special assessments, boards not doing their jobs, all too familiar comments when it comes to paying for maintining and replacing capital items.
Saving and investing the income is the correct approach. I call it
Reserve Today or Pay Tomorrow
I think the real issue is that management companies and BOD don't know what the current status of the reserve fund. An easy to use tool that is accessable via the Internet could work.

Management Companies know the status of the reserve fund but are usually not inclined to be direct with the board. Some Management Companies, including the one that manages Steve's building, are pushing Boards to take loans that include in the closing documents a stipulation that the association can't switch management companies until the note is repaid. If the association catches it the bank removes the clause. Loans are the wrong way to go. Condos are "pay as you go" so why saddle future income with a current expense for past depression. As for the tool to figure the reserves it is available from CAI's website and it is taught in the finances (300 course). If anyone needs it free of charge email me at brian@briankrason.com .

Can we get a link to the condo reserve tool?

http://www.briankrason.com/reserve/

condo reserve tool can be found at
www.reserveinvestments.com
click on the picture
please email if you would like a demo account.