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Condo Reserves

Mike Lamb

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A client of mine is buying into a 14 unit self-managed condo assoc. She sent me the minutes and other docs and it looks like the self-management is in way over their heads. There are a lot of expences coming with little to no reserves.

I send this link to all my customers buying condos:

http://www.smartmoney.com/home/buying/i ... tory=seven

Any suggestions as to other literature re: reserve studies, funds, etc. that may be helpful?

Does anyone else encourage that the buyer get the minutes from the last year or so, to see what's going on ? I do.

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It's the most critical aspect of the entire report. Anyone can figure out if the windows open and close, if the toilets flush, or the applicances have their little anti-tip bracket, etc. The enjoyment of their investment is entirely dependent on all the health and condition of the HOA.

I tell my folks to get a years worth of minutes, see who's fighting, determine if there is resolution, are there pending lawsuits, what's the reserve fund and call me when they find out, etc.

The attorneys don't always look for this stuff. Very often, all they do is title work and tax pro-ration. I've had dozens of customers that were never informed, or that didn't look into any of this stuff until I told them to, and they found out that the building is a freakshow mess or infighting and rental disaster stories.

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Like Kurt, I tell them to do a little bit of due diligence and study the minutes from as many of the HOA meetings as they can. I don't worry about the reserve fund though; frankly, I'm too much of an idiot when it comes to finances and stuff like that - I'd be a lousy person to ask about a reserve fund issue.



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Originally posted by Mike Lamb

it looks like the self-management is in way over their heads. There are a lot of expences coming with little to no reserves.

I've seen that quite a few times. Hell, I was involved with a 6 unit association. We paid $189 a month, in a 100+year old building with a 3 year old rehab and roof. If something would have gone drastically wrong, we all would have been screwed. If I had to do it all again, I would move into a much bigger association, where it's more of a business to manage it, than neighbors trying to act nice to each other.


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I work w/a lot of HOA's that self manage. It's the smart way to go for small associations.

There simply isn't enough money in the management of small HOA's to make it worth a mgt. companies time. That's why they all change mgt. companies every few years, because few if any get it right.

What's necessary is a good inspector to do a quality PCR, and tie a real reserve fund study to the PCR instead of doing the generic reserve study that doesn't tell anyone anything useful.

After that, you need a decent bookkeeper that keeps the checkbook balanced and the quarterly filings together. That costs about $80-100 a month.

None of the mgt. companies hire competent workman or repairman because their mandate is keep costs down, not do good work.

It's a bad cycle, repeated endlessly by HOA's across the city.

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