Capital assessment occurs when there is an improvement necessary in the building, alongside natural calamities that cause significant property damage, HOA must be ready for the unanticipated damage to property. These important capital improvement projects cost a lot of money and most of the people who have to pay for them don’t know about them.
Some capital improvements that are a requirement in improvement for the future are roofs, pavements, sidewalks, boilers or heating systems, ventilation and air-cooling units, and exterior sidings.
And to guarantee a successful capital assessment implementation, here is a list of some best practices that you would consider.
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Planning.
The board needs to take time to figure out how to properly fund the capital reserve. The board needs to have enough money and make decisions based on facts. This reserve study is very important for making plans and figuring out what might happen in the future.
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Be aware of the Capital needs.
To make sure there is enough money in the reserve, the board of directors or managers must come up with a smart plan. After the property or building is done, capital needs assessment is done. Every five years, there will be some reflection of changes in the assessment to make.
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Time duration and cost.
The size, length, level of difficulty, and a number of facilities that will benefit from the upgrade will all affect how much it will cost. But suppose the building has a regular improvement. In that case, the cost of the repairs or modification, if there is catastrophic damage, will not be as high in comparison to a building that is not religiously having an improvement.
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Finding out the improvements.
Conduct an inspection of evident issues that needs improvement, such as cracks, signs of degeneration, and lack of maintenance. Inadequate maintenance may increase the problems regarding the facilities’ condition. The extent of property damage is the underlying factor in the cost of renovations; the more the issues higher the cost of improvements.
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Avoidance of hazards.
A few HOA boards are not ready for a capital improvement project. They usually underestimate the problems and confidence that their funds are enough to handle such improvements. Nevertheless, this mindset typically results in significant issues. The capital needs assessment is the double-barrel. Moreover, it seems that they have the fund, but they are not that ready for the maximum result in the future.
And to help avoid these problems to arise in the future, here are some traditional methods of funding :
- Baseline Funding. It is setting up a fund and making sure there is no cash in the reserve. And answer the question, What’s the amount of money we have?
- Full Funding. It is going to set up a fund that will be nearly fully funded. And this is done by putting a lot of money into the reserve fund and making sure there are no more special assessments in the future.
- Statutory Funding. It is putting together a fund with the amount requirement set by the law. It will say how much money must be kept in the reserve fund at all times. The use of this money is to fix things like the roof, hallways, and HVAC in the future.
- Threshold Funding. It means setting up a fund for more than a certain amount or percentage. It’s kind of like full funding, but not in the same way. And this helps the HOA or owner figure out how to make improvements in the future.
Homeowners Associations need a Capital Needs Assessment to be run well. It is an important part of keeping a condo building in good shape. The less the building needs to be fixed up, the less it will cost the owner and, in the long run, bring in a lot of money.
