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08.31.09 - The 2010 Budget: Planning for an Association Loan

2009, in most corners of the country, has been a horrific year for the cash flow of associations. Unit owner bankruptcies and foreclosures have stripped associations of a tremendous amount of association dues.  We all have fingers crossed that 2010 will see the foreclosure pace having well slowed. Those units that were not paying could then be filled with financially healthy, dues paying, happy homeowners.

As we all painfully know, this financially stressful experience began way back in the summer of 2007. We have been wrapped up in this difficult time for a long time. Typically, what most community associations have done during this period is controlled their expenditures in a very draconian fashion. Deferred maintenance, that really needed to be addressed prior to now, has not. The leaky roof is now rotting the roof sheathing and trusses. The parking lot is all chopped up. But, because there has been a very constrained budget and likely reserves are depleted to access cash to support operations because of so many non-paying units in foreclosure. There may be only 2 options to fund a capital maintenance project:  Special assessment or obtaining loan.

One of the things that is a coming reality as result of our government’s efforts to stimulate the economy is going to be inflation. It’s not a maybe. It will occur as all the economists are reaffirming regularly in the news. The only maybe is WHEN. Logic suggests, as soon as the economy begins picking up, inflation be simulated. The guess is that 2011 will be the year inflation will start growing out of control. What is inflation? Inflation is raising prices. Inflation is increasing interest rates. Inflation is very painful and problematic. Does anyone remember December 1980 when the Prime rate was 21.5% because inflation was around 10%?

2010 is likely the last best year to get your capital maintenance projects done on the cheap. Because of the terrible condition of the economy, contractors are available and hungry for work. The prices of construction material are down. Interest rates are low. This is a perfect storm of conditions to get a project done in a least cost manner. Waiting beyond 2010 is going to be the worst of all possible conditions. The economy will be taking off which means the contractors will become busy. Thus, their prices go up as their availability contracts.  As demand for building materials increases, prices go up. The imbalance of government intervention of the past few years is going exacerbate the extent of price increase: inflation.

Important in your project planning is the source of funds. That is where HOALendingSolutions.com can help. It is going to be tough to be able to levy a special assessment after what your unit owners have been through for these past couple years. If you plan on obtaining a loan to finance your capital maintenance projects, you will need to be presenting a sound financial position to the bank. Banks are very skittish about taking on any type of borrower that might even show the smallest degree of weakness. The best thing you can do is plan your 2010 budget to show proper planning and healthy cash flow.

As indicated above, you have a small window of opportunity to get capital maintenance projects done inexpensively. Do not squander the opportunity by leaving yourself unable to qualify for a bank loan to fund the projects. Contact HOALendingSolutions.com today.