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  • Frank Rizzi manages Bos Commercial in West Covina and has been in real estate since 1988. Since then, he has made millions for his investors over the last decade.

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HOA Reserves-Why its important to have enough.

According to the Sterling-Davis Act, Home Owner Associations are supposed to complete or update a reserve study every year. 90% do not. When we usually take over an association, and I ask for their latest reserve study, I either get something that is 5 years old, or they just do not have one.
About 6 months ago we started to manage an association, with a severe reserve problem. They had only $3500.00. This is an eight unit building that is over 30 years old, and things are starting to fall apart.
There first project they wanted to tackle was the repair/replacement of the patios and decks. The bids to do the work were between 12-17 thousand dollars. None of them included underlying wood replacement. The board decided to move forward with the $12,000 bid. They did a special assessment and raised $17,000.00, because it was obvious there was underlying wood damage.
The contractors started to remove the old Magnesite and damaged wood. They were only 25% done with the demo work when we asked them to stop. The damage to the patios was so extensive that only 20% of the area was salvageable, the rest of it had to be completely demolished and rebuilt. Total damages and cost will exceed $42,000.
The work has been partially completed, with all underlying wood replaced, iron work repaired, and new floor drain lines installed, for a little more than the $17,000.00 that was already raised. It was important to get to this level of the work to prevent injury, and prepare it for the installation of the Magnesite. The board now needs to go back to the homeowner’s and prepare another special assessment for the remaining $25,000.00 to complete the job.
We have since ordered a reserve study. Were waiting for the results, but my guess is the association will need to raise their HOA dues a minimum of 20% per year for the next five years, plus special assessments of at least $10,000.00 per unit, in order to save enough to perform termite damage remediation, painting, landscaping, fire-sprinkler repair, iron/fence work upgrades, and lighting replacement.
The previous board had never wanted to raise the HOA Dues which where half of comparable properties in the area. Because they never had any substantial money to perform any real improvements to the building, the current owners are stuck with a huge bill, tons of differed maintenance, and units that are difficult to sell.
My tip of the day for HOA’s: Get your reserve study current, and implement the findings. The ultimate cost may be a heck of a lot more if you do not keep your HOA dues inline.

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