Four Things You Should Focus On When Analyzing A HOA's Finances

When buying a condo, one of the things you shouldn't forget to do is an analysis of the homeowners' association (HOA) finances. Here are some of the things to focus on during the analysis:  

The Existence or Lack of Emergency Loans

One of the things you should scrutinize is whether the HOA has taken any emergency loans in the recent past. Emergency borrowing is a bad idea that usually means the borrower has poor financial planning. In the case of an HOA, it may mean that they don't know how to budget with the money they have, spending it on unnecessary things and leaving the development exposed to emergency issues. It may also mean that that the HOA isn't too keen on property maintenance; poorly maintained properties often suffer sudden damages that may necessitate emergency funding.

Studies Done By the HOA

You should also find out whether the HOA has done a study on the adequacy of its reserve funds. Professionally managed HOAs regularly carry out these studies to determine whether they have enough funds for managing the services entrusted to them. AN HOA that invests in reserve fund evaluation shows its seriousness and is also more likely to be trustworthy than another that hasn't carried out such a study in the recent past.

Money Owed To the HOA

In a typical HOA, you expect to find a few people struggling with their fee payments or those who are just difficult to deal with. These people will owe the HOA money at one time or another. However, if the number of people who owe the HOA money is just too high, it might also mean the HOA isn't serious in its collection efforts. For example, you should be wary of an HOA if more than 10% of its members owe it money.

Status of Cash flow        

Lastly, you should also look at the cash flow of the HOA to determine whether it is positive or negative. A positive cash flow is a situation in which the HOA is getting at least as much money as it is spending. AN HOA with a positive cash flow is at a reasonable financial strength. However, be wary when the HOA seems to be spending more money than it is getting (negative cash flow); at the very least, prepare yourself for increased fees if the cash flow is negative.

As you can see, there is a lot you can tell about a property development and its HOA just by analyzing its finances. Buying through an agent will help you in this regard because the agent will help you with the analysis too.