understands the remaining useful life of your common elements can make all the difference in how you plan your financial future. Common elements don’t tend to deteriorate in a short period of time. There is normally plenty of time to plan and save sufficient funds to repair or replace them. Not doing so invites both criticism from unit owners and higher costs when having to borrow to make the needed repairs. An expert in construction costs, quality materials, reputable firms and local zoning requirements can keep your dollars from being lost in a hat and eaten by the rabbit.
Financial Institutions
Most every bank or financial institution can help you invest your reserve funds, although there is an important need for board members to understand the term “fiduciary duty.” One head-scratching moment for me was a meeting I attended one evening with a board. When I looked at their financial statements, I noticed they had made an investment that had actually gone down in value. It wasn’t insured by the FDIC and there was no guarantee the association could get its money back. The most important rule for board members to follow when it comes to reserve funds is “preservation of capital.” There is no risk worth taking in an effort to gain a better return on reserve investments if it means potentially losing any of your principal.
When it comes to obtaining a loan, the Illinois Condominium Property Act has a provision that allows a board to pledge the collection of future assessment income as collateral for
a loan. It is an often-used method for completing a needed common element repair now while having the benefit of paying for it over an extended period of time. Many loan terms will extend anywhere from two to ten years with competitive fixed interest rates. However, there are only a limited number of banks in Illinois that truly understand how to lend to a community association. As with any contract, it is important for a board to understand the terms and conditions contained in any loan agreement. We lived through almost ten years of near-steady interest rates; however, the last 18 months have proven that times are now different and interest rates can change quickly between the first time you meet with a lender and when you sign the final set of loan documents. Ask questions and consult with your managers and attorneys as they have likely worked with various lenders in the past. They will know which banks understand the industry and what you should expect in an offer you receive for financing a common element repair.
MAGIC is the art of illusion that is only accomplished successfully through practice and discipline. The same discipline is necessary to oversee a residential owners’ association and turn it into a well-run community. But depart from the recommended disciplines and you may find yourself chasing that rabbit - and your money - into a hat that has no end in sight.
NEED EXPERT CONDO/HOA REPORTING SERVICES?
BRING HOME THE BEST!
For more than 40 years, Cukierski & Cochrane has provided over 1,300 Chicago-area HOAs and Condominium Association boards of directors with state-of-the-art audit, review and compilation reporting services to help prepare more accurate annual budgets, make more informed operating decisions, or simply provide greater assurance of financial health.
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info@ckwcpa.com |
www.ckwcpa.com
Available and accountable Timely and informative communication Clearly presented financial statements Experienced and dedicated staff
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42 | COMMON INTEREST® • Spring 2019 • A Publication of CAI-Illinois Chapter
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