HOA Maintenance Services: How to Plan and Pay for Property Improvements
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What should be included in our HOA maintenance plan (in fact, what IS a maintenance plan)?
Aren't maintenance and capital improvements the same thing?
How are we going to pay for our building's HVAC replacements?
How should we pay for the new roofing on our clubhouse?
Why are we always making last-minute repairs?
Any of these questions sound familiar? Whether you're a new association board member or been an involved volunteer for a while, community maintenance and capital improvements can feel overwhelming at times. Ultimately, you want to know what repairs or improvements you should make, when you should make them, and how you'll pay for them.
Consistent maintenance and capital improvements supported by sufficient reserves can lead to an increase in property values. In a study conducted in 2017 by Robert Nordlund, CEO of Association Reserves, experts at FirstService Residential found that associations with well-funded reserves above 70% averaged 12.6% higher property values than similar homes in associations with poorly funded reserves 30% or lower.1
For a deeper dive into reserves and how to maximize your funds, read our article, Association Reserves: Beyond the Basics and Maximizing Funds.
So, what are the most important aspects of maintenance and capital improvements that your board should know? Start with these four questions:
HOA and High-Rise Maintenance vs. Capital Improvements: What's the Difference?
Knowing and understanding the difference between routine maintenance and capital improvements is the key to staying on budget and maximizing expenses within your HOA maintenance plan. First, let's define the two categories:
Routine maintenance includes completing necessary wear and tear projects and repairs, such as electric and water maintenance, landscaping, paint touch-ups, and heating issues. This process is an essential part of ensuring that your community and building assets are always functional and maximizing their useful life. These types of maintenance projects are frequently revisited, and they should be accounted for in your annual budget planning. Make sure to prioritize routine maintenance. It will minimize disruptions to your operations and can ultimately save you money in the long run.
Capital improvements encompass sizable maintenance efforts, such as playground restoration, swimming pool filtration system replacements, and road and pavement resurfacing. These projects are essential to maintain and improve the quality of life for residents, increase property value, and elevate the overall aesthetic of your property. By investing in capital improvements, you not only create a more enjoyable living environment for your residents, but you also elevate the overall appeal of your property, making it more attractive to potential tenants and buyers.
To ensure proper budget allocation, it's important to accurately distinguish between capital improvements and routine maintenance projects. Reach out to your management company and engineering team for guidance, as they can provide valuable insight into this process. Keep in mind that capital improvements are typically funded separately from your annual meeting budget, and a special assessment may be required depending on the scope of the project. For more information on funding options for your projects, read on below.
Learn how you can plan for maintenance and capital improvements with minimal chances of requiring a special assessment. Read our article, HOA Capital Improvement, Maintenance and Useful Life: Are You Prepared? for an in-depth explanation of the relationship between these types of projects and their useful life.
HOA Maintenance Checklist: How Detailed is Yours?
Maintaining shared spaces and amenities within your community or managing the complex systems of a high-rise building can be a daunting task. The way your association handles maintenance can significantly affect the reputation of your community, resident satisfaction, and property values. To ensure you stay on top of your maintenance and budget, a comprehensive HOA maintenance plan is essential. This plan should include preventive maintenance, repairs, and replacements. Don't underestimate the importance of proper maintenance - it can make a world of difference.
Neglecting to establish a concrete maintenance plan can result in increased expenses, more frequent emergencies, and a decrease in resident satisfaction. In order to avoid these issues, it's important to create a great maintenance plan that addresses the specific needs of your community. A well-executed maintenance plan should prioritize three primary categories: preventive maintenance, repairs, and replacements. By focusing on these areas, you can ensure that valuable assets are kept in excellent condition, residents are kept safe and satisfied, and your association maintains a positive reputation within the community.
According to engineering experts FirstService Residential, you shouldn’t underestimate the importance of understanding the unique needs of your community when establishing your maintenance program. If your community or building has complex equipment and assets, you need to have maintenance professionals that have the expertise and training to do the job well.
Read our article, Is Your HOA Maintenance Plan Proactive or Reactive? 12 Questions to Ask, and download a free guide to assess your current maintenance plan.
Funding Your Capital Improvements: What Are Your Options?
Renovating your clubhouse, installing a new playground, or upgrading the rooftop pool can significantly enhance your property. However, these large-scale projects require more planning and funding than everyday maintenance. To finance capital improvements, you have three options: reserve funds, a special assessment, or a business loan. It's essential to work closely with your management partner to assess the pros and cons of each option before implementing an HOA maintenance plan that best suits your association's unique needs.
Use your reserve funds: While a reserve fund is the ideal way to pay for necessary capital improvement projects, it's important to be aware of the restrictions on its use. Work closely with your association's management company and attorneys to ensure you're using it for the right projects and to avoid hefty tax bills. No matter how prepared you are, life happens. Accidents and natural disasters are impossible to avoid, and you could face a long list of projects to fund. That's why it's essential to keep your reserve fund fully funded and have alternative emergency fund options available.
How do you maximize your reserves, and what common blunders should you avoid? Read our article, Association Reserves: Beyond the Basics and Maximizing Funds, and download the free guide for more information.
What is the biggest (and common) blunder when it comes to your reserve funds? Watch a quick video clip below to hear from Kirk Kowieski, vice president at FirstService Residential.
Take a special assessment: Special assessments may not be a popular choice among some boards, but they can provide a viable option for funding capital improvement projects when done correctly. To ensure success, it is important to have a strategic communication plan in place before presenting this option to residents. It is important to show that their opinions are valued and heard before beginning the project. By taking these steps, special assessments can be a valuable tool for achieving capital improvements for your community.
"People are often looking for quality of life and consistency offered by an HOA. When your board communicates with residents and helps them understand the why behind capital improvements and special assessments, that level of understanding leads to greater alignment and agreement."
- Robbin Brown, Executive Vice President, FirstService Residential
Obtain a loan: If you're hesitant to dip into your reserves or impose a special assessment, a business loan may be the most viable option to finance your capital improvements. Fortunately, most banks are willing to provide association loans with attractive terms and minimal prepayment fees. You can expect loan periods extending up to 10 years with potential amortization of 15 to 20 years, along with lower closing costs. However, it's critical to obtain professional guidance from your management company, attorney, and governing documents before pursuing a significant loan.
FirstService Financial can negotiate the best pricing and terms available for FirstService Residential clients through their existing relationships with regional and national lending partners. They are able to provide unique expertise in underwriting common interest community loans, flexible financing requirement solutions and a streamlined underwriting process that results in expedited funding for associations.
For example, FirstService Financial recently provided funding for an aging condominium community in San Diego that required major maintenance projects such as roof replacements, exterior building paintings, streets and cement work. The board of directors worked closely with Karla Chung, vice president of FirstService Financial, to simplify the process and obtain a $1 million business loan.
Maintenance Mentality: What's Your Association's Style?
Now that you understand the difference between routine maintenance and capital improvements, the importance of a well-documented maintenance plan and various funding options, it's time to assess if your association has the right maintenance mentality. What does this mean, and why is it important?
Just like having the right mindset for success, having a preventive maintenance style is essential for creating positive resident experiences and maintaining your community's reputation. However, it's not uncommon for associations to approach maintenance issues in a reactive or deflective style due to a lack of expertise, bandwidth, or resources. Does this sound like your association? Learn more about these styles below and discover actionable steps that you can take to be more proactive in upholding the reputation of your community and ensuring high property values for residents.
Reactive maintenance the most common approach that HOA and high-rise boards take when fixing or replacing assets. Many associations adopt the "if it's not broken, don't fix it" mentality to save on costs. However, while this approach may seem practical for minor repairs, it's not a sustainable solution. The cost of immediate repairs will be more expensive in the long run. Most maintenance projects and repairs are predictable, and planning for them in your annual budget is crucial. Don't let short-term savings lead to long-term expenses - take a proactive approach to maintaining your association's property. Consult with your management company or maintenance specialists to stay ahead and avoid any unexpected costs.
Deflective or "third-party managed" maintenance is another common style where your association relies on vendors or third-party companies to manage maintenance projects. When it comes to community maintenance, relying solely on vendors may not always be the best solution. While they may have expertise in specific equipment, their capacity to prioritize your community's needs may be limited. And if multiple vendors are involved, ensuring comprehensive completion of all projects can become a challenge. Instead of outsourcing maintenance responsibilities, consider the advantages of having an in-house engineering team or designated point-of-contact person. With a dedicated team, you can prioritize and care for all your association's needs efficiently and effectively. This approach also allows for more personalized attention and accountability for maintenance issues.
Preventive maintenance is the most effective and recommended approach to safeguarding your assets and avoiding unexpected expenses. By preparing in advance for routine maintenance tasks, your board will have more opportunities to invest in eco-friendly building initiatives and energy-efficient equipment. A comprehensive preventive maintenance plan entails routine inspections and continual monitoring of your facilities, amenities, and equipment by experienced professionals who can provide guidance and training to your board. That’s why it is critical to collaborate with a seasoned management firm that possesses in-house specialists, a robust network of resources, and dependable partnerships with expert engineers and vendors.
So, what's your maintenance style? Read our article React, Outsource, or Prevent? Find Your Association's Maintenance Style for an in-depth explanation of the three styles and determine which matches your association.
Final Takeaways
As a member of the board, enhancing the quality of life for your residents while protecting and improving your community's assets is one of your primary responsibilities. One of the keys to success in this effort is understanding the difference between routine maintenance and capital improvements. Additionally, recognizing the importance of a detailed maintenance plan and keeping an eye out for potential funding opportunities are crucial for confidently leading and growing a thriving community. With these strategies in place, your board can ensure an excellent resident experience and maintain high property values for years to come.
Bibliography
1. Nordlund, Robert. 2017. " 10 Ways to Improve Property Values." Reservestudy.Com. https://www.reservestudy.com/resource/article/10-ways-to-improve-property-values/