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Brooklyn Property Management Blog of ProRealty

Best tips and advise on administering a capital assessment for your homeowner association

How to Implement Capital Assessment? Best Practices.

Brooklyn Property Management Blog of ProRealty

Best tips and advise on administering a capital assessment for your homeowner association

Capital assessment occurs when there is an improvement needed in the building, alongside natural calamities that cause significant property damage, HOA must be ready for the unanticipated damage to property. These crucial capital improvement projects come about at a high cost and are seldom known to residents who must shoulder the cost.

Some capital improvements that are needed to be improving in 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, listed below are some best practices that you would likely consider.

  1. Planning. The board must need to invest time to plan on how to fund the capital reserve adequately. The board requires to have enough budget and make analytical decisions. This reserve study is crucial in planning and predicting a possible problem that they will face in the future.
  2. Be aware of the Capital needs. The board of directors or managers must have an intelligent approach to guarantee adequate money in the reserve. A capital needs assessment takes place after the property or building has finished. The assessments revise every five years to meet the needed improvements for the time being.
  3. Time duration and cost. The cost relies upon the size, period, difficulty, and the number of facilities that should be improved. 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 as high compared to a building that is not religiously having an improvement.
  4. 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.
  5. Avoidance of hazard. A few HOA boards are not prepared 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. It seems that they have the fund, but they are not that prepared 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 establishing a fund and keeping the reserve cash balance to zero. It answers the question How much money do we have?
  • Full Funding. It is establishing a fund to a near 100% funded. And it is accomplished by settling an ample amount to the reserve fund and ensuring no other special assessment is needed in the future.
  • Statutory Funding. It is establishing a fund considering the amount required by the statutes. It will regulate the minimum amount of money to keep in the reserve fund. And this fund will use for future improvements such as roofing, hallways, and HVAC.
  • Threshold Funding. It is establishing a fund above the specific amount or percentage amount. It is somehow similar but less conventional than full funding. And this helps the HOA or owner in analyzing future improvements.

Capital Needs Assessment is necessary for managing Homeowners Associations. It is essential in maintaining the excellent condition of a condo building. The fewer improvements needed in the building, the less the expenses for the owner and, in the long run, generate a significant income.

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