Happy New Year from Barrera and Company!

This year, resolve to cut your costs and properly fund your reserves.

Oftentimes delinquent dues and bad debt will create cash-flow problems for your Homeowners Association (HOA). Collections and liens can be costly and hard to retrieve as well. As board members and property managers, you are expected to consistently look for ways to cut expenses – especially in these hard-hitting economic times.

In the past, we’ve looked at some “outside-the-box” ways to cut costs – such as leasing common area space for cell phone antennas.

Here are a few areas in which every HOA can gain more control resulting in cost savings for the community and possibly lower monthly assessments. This will make adhering to your reserve study more attainable this year.

Contract Negotiation

Rather than getting stuck in long-term agreements, think about shifting to annual renewals. This gives you the chance to renegotiate pricing each year, and to opt out of contracts whose quality of service has fallen. Vendors will pay more attention to the account if they know renewal is not guaranteed and tied directly to their performance.

Landscaping and Water

Add a requirement in your contract to have the landscape vendor turn on all water stations after mowing and edging to check for leaks. Post signs reminding owners to report water leaks and broken sprinklers immediately; make certain sprinklers aren’t aiming onto pathways, parking areas and walls. Update old irrigation lines and sprinklers to cut down on water usage, and use bubblers for decorative plants and ground cover. Make sure you are using the correct lawn seeds for your climate and traffic pattern; choose grass types that are tolerant to higher temperatures and lower water levels.

Green areas have many benefits over using rock landscaping; contrary to popular belief that you should landscape with rocks to save money on water. Lawns cut down on pollen, filter toxins in the air, cool the air temperature (while rocks give off heat into the evening – called the “radiator effect”), and help to prevent rainwater runoff into sewer systems, waterways and even your parking lots.

Pools and Jacuzzis

If you have multiple pools, choose only one to heat in the cooler months. Solar systems are quite costly and may only increase your swimming timeframe by a few weeks. Propane or natural gas heaters are becoming more and more efficient, and updating them is probably better money spent then a solar system. Consider switching from chlorine-treated filtration to salt water – not that it will decrease the pool service fee, but the chemicals are harsher on the pool, as well as its plumbing and filtering equipment. Put the Jacuzzis, whether above or in ground, on timer switches that automatically shut off every 20 minutes or less.

Cable TV, Internet, Security

If you provide some or all of these services for the community, negotiate the best “bundled package” possible – again, shorter term might assure the best services and rates can then be renegotiated annually. Sometimes paying a little more per month not to be locked into a long contract is a wiser move. Most of these companies offer a teaser price (good for 3-6 months) to lure you in, then raise the prices higher and higher throughout the usual 24-month term. Of course, if you can leave these items up to the individual homeowners to handle, it is just one less issue for your HOA; and they will appreciate the ability to choose their own carriers.

Office Expenses

Postage is a large expense, considering the various notices it is your job to send out to the membership annually. Try to combine documents into one mailing (invoices with newsletters for instance), use postcards to communicate instead of letters when possible, and of course email whenever you can. A PDF document sent over the Internet costs nothing, and the responses (if required) are much quicker.

Insurance

Bid out the account each year to take advantage of market changes – don’t assume your insurance agent will automatically apply earned discounts, stay on top of this. Consider raising your insurance deductible in order to reduce the premiums; make room in your operating budget for the larger insurance deductible so you are covered in case of a loss. Be certain to require all vendors to provide up-to-date license and insurance binders; requiring that the vendor name the HOA as additionally insured will prompt the carrier to advise you if the coverage is cancelled.

Interested in getting a Reserve Study for your community? Click here to get a proposal!

To Group

Within a Reserve Study, it’s common to see multiple assets lumped together. For example, the roofs of several buildings or different pieces of common area furniture. It makes sense to group components that will need to be replaced at the same time. In the case of the roofs, they should have the same Remaining Useful Life (RUL) and Useful Life (UL). Same with the club house furniture – it may be the case that you would want to replace all the furniture at once to keep with a cohesive theme throughout the property. Grouping such assets together makes for a less confusing and more concise Reserve Study.

The bottom line: If Reserve Components have the same UL and the same RUL they can and should be grouped together.

Not to Group

We’ve updated Reserve Studies in the past and found inappropriately grouped components. We’ve seen the roofs of several building lumped together when in fact, one or more had failed and been replaced. It’s extremely important that those are pulled out and separated because they now have different UL and RUL.

In some cases we’ve encountered whole buildings lumped together as one component – roofing, exterior painting, interior painting, HVAC, flooring, furniture. Obviously the UL and RUL of these components are drastically different. Reserve Studies are supposed to be a valuable planning and budgetary tool for you and your community. There’s simply no way to accurately plan ahead when assets are inappropriately grouped together, projecting a large, singular future expenditure.

The Question

When you receive your Reserve Study, make sure you ask questions. Look for lumped assets and make sure they have the same UL and RUL. If your Reserve Analyst can’t explain to you why some components are grouped together, ask him to split them out. This could be a costly mistake down the line so make sure you’re asking the right questions and holding the Reserve Analyst accountable.

Interested in getting a Reserve Study for your community? Click here to get a proposal!

We get lots of questions about how often a reserve study should be performed, as well as what information one needs to provide.

To answer some of these questions and simultaneously clear up some of the confusion surrounding reserve fund studies, we’ve put together this handy check-list.

In order for a professional engineer or consultant to conduct the study, he or she will require:

• the most recent audited financial statements
• the current annual contribution to the reserve fund
• repairs and replacements to the common elements that have been completed and in what year
• scheduled future projects
• any outstanding concerns that need to be reviewed, such as water penetration

Condominium directors and HOA’s that refuse to conduct such studies are putting themselves at risk for possible legal action from unit owners, who suffer an increased financial burden as a result of the delay.

Delaying a reserve study can place insurance policies in jeopardy, and affect the resale values of the units in the complex.

For these reasons it’s imperative that a reserve  study is completed on a regular basis.

Interested in getting a Reserve Study for your community? Click here to get a proposal!

Homeowner’s Associations are often faced with large maintenance and repair jobs and find themselves in over their head. Such projects often involve several different disciplines such as electrical, plumbing, carpentry and engineering that must be separated and set out for bid. Jobs like these are best handled by a professional project manager.

Here’s why:

Win / Win

Both HOAs and subcontractors want to get the job done in the most efficient manner. When there are misunderstandings and miscommunications often lead to cost overrun and missed deadlines. We’ve found that in most cases the HOA is put out by extra costs while the subcontractor is left with more work that he can collect on. No one is happy.
Conversely, a good construction manager provides accurate specifications, scheduling and supervision that keeps everyone on the same page and operating at maximum efficiency.

Contractual Issues

A professional construction manager helps draft contracts that inherently keep change orders to a minimum with accurate and timeframes / deadlines and fair penalties that incentivize efficiency. Contracts should also require evidence of liability and workers compensation insurance.

Scheduling

Understanding the sequence of construction events and coordination amongst the subcontractors is an art only mastered with years of experience. HOAs need a professional Construction Manager who “speaks the language” and isn’t afraid to get his hands dirty when issues arise. There’s a lot of moving parts when it comes to complex renovation and repair jobs. Make sure you have someone in your corner that understands each of them.

After more than 30 years of conducting property evaluations for reserve studies we are excited to announce that we will now be offering a host of project management services to home owner’s associations (HOAs) and property management companies. Under the direction of newly appointed Principal, Peter McNabb, we will leverage our vast knowledge of reserve and building components to oversee construction, reconstruction and building modernization projects.

Prior to joining Barrera & Company, Peter served as President and CEO of Peterson Brothers Construction (PBC). While at PBC he helped transition the company from a local concrete contractor to a $100 million group of companies serving commercial and residential construction throughout the Southwest.

“Time after time, we’ve seen project owners come across the same problems”, said Damian Esparza, Chairman of the Board at Barrera & Company. “Blown budgets, late project completions, poor material quality and unmet specifications have cost them a significant amount of unanticipated time and money.”

We will ensure efficiency and accuracy in the construction and reconstruction process from start to finish. Some of the core offerings include: serving as a the owner’s representative, value engineering, specification writing and management, overseeing a comprehensive bid process, contract administration, contractor qualification and selection and scope development. We will act as an extension of the project owner and maintain an open and transparent process throughout.