You work hard and try to put money away to be used for a rainy day —hoping of course that that ‘rainy day’ is a long-awaited trip to somewhere fabulous and tropical. Then, boom—the brakes on your car suddenly go, or one of the kids needs braces, and now you’re tapping into your reserves to pay for these surprise expenses. Sometimes though, you may not have enough dough to cover the costs, so you have to borrow from friends or family or even take out a loan with your local bank.
Even for a financially solvent community, a major repair or replacement project – such as a new roof, a total window replacement, or a similar big job -- can trigger the same kinds of stress we feel regarding our own finances. There is the same concern about whether or not the board has put enough money aside to actually cover an emergency repair or capital improvement project. And if they haven’t, what then? How do you raise the money to get the roof get replaced?
A Capital Idea
“[For capital improvement projects] you typically see roofing, siding, any type of paving project, HVAC projects, any type of renovation, elevator repair or any substantial undertaking in the common elements of the community,” says Matt Driscoll, vice president/regional account executive at Mutual of Omaha Bank in New Jersey, New York, Pennsylvania, and Delaware.
“Capital improvement projects fall under some pretty wide descriptions of anything that could go on at a property, from alterations and improvements to the common areas and replacement of mechanical systems … and even a new structure or amenity,” says Andrew Lester, president of of First Service Financial, a lender active in markets across the country.
A capital project is something that happens about every 10 or 15 years, so the board should definitely be planning to fund those repairs over time—indeed, it’s part of their fiduciary duty to the building and its residents. “Many buildings have what’s called a reserve study so that they can determine when things are going to need to be replaced and how much they need to put away over time to be able to handle those repairs when they come up,” says Lauren Peddinghaus, owner of Haus Financial Services LLC in Chicago. “However, we find that a lot of buildings have failed to plan for reserves, and no money has been saved.”