Avoiding Special Assessments for Associations

Special assessments can be an unwelcome necessity for board members, often required due to underfunded reserves that are needed for significant capital projects like roof or equipment replacements. Additionally, assessments might be necessary because of rising insurance premiums or budget deficits, leading residents to pay more than their regular monthly assessments, sometimes amounting to hundreds or thousands of dollars. However, there are strategies to help avoid these situations.

Importance of Reserve Studies

A reserve study is a key tool for understanding a community's future financial obligations and ensuring funds are available when needed for major expenses. Some boards might worry that maintaining large reserve fund balances will raise questions among residents. However, pre-funding capital projects is the fairest approach for both current and future residents.

Although reserve studies are crucial, they are not static documents. They need regular updates as the lifespan of common components can change due to overuse, weather, or unexpected challenges. Engaging professional contractors to assess these components regularly can help anticipate necessary refurbishments or replacements, thereby avoiding future special assessments.

Alternatives for Funding Capital Projects

Borrowing can be a worthwhile option for financing capital projects. For instance, a community planning to replace roofs over several years might find it more beneficial to do so all at once, thus avoiding repair costs. A competent property management company can offer various financial options to associations.

Updating Insurance Coverage

Insurance costs for associations have been on the rise, influenced by factors such as the pandemic, which led to costlier insurance renewals and reduced coverages. Some regions have seen a decline in the number of available insurance carriers and increased reluctance to cover smaller associations. Additionally, an increase in natural disasters has escalated insurance costs.

It's essential not to overlook insurance as a budget line item. Working with a property management firm that has financial expertise can help navigate insurance complexities and ensure proper budgeting, preventing situations where you're left unprotected or underfunded.

Effective Insurance Budgeting

Reflect on last year's insurance needs and the coverage you wish you had. Collaborate with your property management company to identify any coverage gaps. Leverage their insurance resources to attain competitive rates for essential community coverage.

Reality-Based Budgeting

Sometimes, boards hesitate to raise regular assessments, possibly due to concerns about resident reactions or personal financial impacts. However, avoiding assessment increases often leads to the necessity of a special assessment eventually.

To prevent imposing special assessments, create budgets grounded in reality. Allocate funds for community care and reserve contributions as dictated by your reserve study each year. While special assessments cannot be entirely avoided, adhering to these guidelines will help maintain your community's financial stability.