HOA capital improvements can improve the residents’ quality of life and increase property values. However, they can cost a ton of money to construct and maintain. Are homeowners association capital improvements worth it?
What Are HOA Capital Improvements?
HOA capital improvement projects are structural alterations, improvements, or additions that increase a property’s overall value. These upgrades and modifications can extend a property’s useful life by enhancing durability and quality.
Capital improvements come in many different shapes and forms. To help you further understand what these are, here are some examples of common capital improvements:
- Roof replacement of a common area building
- Landscaping upgrades
- Solar panel installations
- Major parking lot or road repair
- Clubhouse or swimming pool renovation
Capital Improvements vs HOA Maintenance
Many homeowners will often confuse capital improvements with regular HOA maintenance. However, there is a key difference between the two: capital improvements mainly aim to extend an asset or property’s useful life.
Meanwhile, HOA maintenance keeps the property in good condition to meet its expected lifespan. Regular HOA maintenance includes HVAC inspections and cleaning, pool upkeep, playground maintenance, and routine landscaping.
How to Fund Capital Improvements
Typically, HOA maintenance expenses are part of the HOA’s regular operating budget. In contrast, capital improvements are more expensive and require additional funds.
Reserve Fund
Communities often take funds from the HOA capital reserve fund, which is often set aside for major projects like these. Taking money from the reserves allows the community to make upgrades or construct new amenities without levying special assessments.
However, to make this possible, HOAs must have properly funded reserves. Communities often include a reserve fund allocation in the regular assessments so they can save up for these projects gradually.
HOA Loans
Homeowners associations with insufficient reserves can borrow to fund HOA capital improvements. They can borrow money from a bank or other financial institution to pay for construction. Over time, the HOA must pay the money back with interest.
On the other hand, remember to take out a loan only if the HOA is financially capable. It’s best to do this when interest rates are low and when the HOA can confidently pay the money back in the future. Otherwise, the HOA may find itself in significant debt, and the homeowners must pay for the debt out of pocket.
Special Assessment
Some communities implement a capital improvement fee HOA to fund the projects. These are considered special assessments that are separate from regular dues. They can be a large, one-time fee or smaller installments over several months.
Special assessments are often a source of conflict within communities because they place an extra financial burden on residents. For this reason, they are an unpopular method of funding capital improvements and should only be used as a last resort.
Are HOA Capital Improvements Worth It?
HOA capital improvements often cost a lot of money. The HOA usually needs to dip into its reserve funds or levy an HOA capital improvement fee for the project. Thus, the community will have to pay more monthly assessments.
This begs the question: Are capital improvements worth it? Let’s examine the different reasons why they could be worthwhile for communities.
1. Reduced Utility and Maintenance Costs
Capital improvements are not just luxury additions to the community’s many amenities. They can also upgrade a community’s facilities, extending their useful life. While this may seem unnecessary to some homeowners, capital improvements can decrease utility and maintenance costs.
For example, let’s say the HVAC systems of a clubhouse are outdated. Older systems often consume more energy and are less efficient than newer technology. An HOA can upgrade the HVAC system and install solar panels to reduce consumption and boost efficiency. This will lead to long-term savings in the HOA’s total electricity bills, reducing HOA fee increases over time.
2. Extended Property Lifespan
Let’s face it: all facilities will deteriorate over time. Regular maintenance can keep them in good condition, but each amenity will eventually need repairs. These will require a lot of funds, especially if the amenity is damaged to the point that it needs replacing.
A dedicated HOA capital improvement fund and capital projects can significantly prolong the lifespan of HOA assets. As a result, the HOA will not need to make repairs or replacements anytime soon. In the long run, this can reduce the community’s overall spending, as renovations may be less costly than major repairs and outright replacements.
3. Increased Community Satisfaction
When the HOA looks rundown and does not function as well as it used to, it can really take a toll on the community residents. What was once a neighborhood that made them proud can be a source of shame and frustration.
Capital improvements can breathe new life into the community by upgrading or adding something new to the HOA. This can enhance the residents’ quality of life and increase satisfaction.
4. Increased Amenity Usage
Old and worn facilities can deter residents from using HOA amenities, making them useless to the community. However, the HOA is still obligated to clean and maintain them regularly regardless of whether the residents use them.
However, letting things go on this way is a waste of time and money. With a simple renovation, the HOA can encourage the residents to use the facilities again. Alternatively, the HOA can tear down the old structure to add a new and more helpful amenity that adds value to the members’ lives.
Plan Capital Improvements Carefully
HOA capital improvements can certainly be worth it for many communities. However, HOA boards must plan these capital improvement projects carefully. They shouldn’t jump into a project without proper research and financial planning. Otherwise, the community might see these improvements as more trouble than worth.
Does your community need help with HOA capital improvement planning? 88 Doors is just the right HOA management company to help. Our team of experts can assist your board with planning, budgeting, and implementation. Call us at (512) 348-8821 or contact us online today!
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