Why HOAs expand and why you might need more budget?
Fortunately, expansionists boards do not govern most associations. But on occasion, an opportunity arises that is worth consideration. When an opportunity arises, few HOAs have a war chest of funds readily available to take advantage of the situation. Fortunately, the market for Association loans can help fill the void.
Adjacent land could be a reason to expand and can be a reason to get more HOA budget
Recently, an HOA in the Southeast found themselves facing an unpleasant dilemma. Their community bordered a private golf course. Many unit owners within the association were also members of the golf club. Their proximity to the golf course was one of the main reasons they lived in the community.
A death in the family prompted the owners of the golf course to list the property for sale. When a local property developer showed interest in converting the golf course into another development, the HOA began to get nervous.
Aside from the convenience of a neighborhood golf course, residents feared their home values would decline if the golf course disappeared.
The association was able to come together in agreement to purchase the golf course. They viewed the transaction as a defensive move that would help protect their home values. They overwhelmingly voted to increase their monthly dues enough to meet the debt service on an HOA loan.
A Vacant unit can be a great reason to expand
A Midwestern HOA found themselves in a precarious position when one of their units went into foreclosure. This unit had been a problem for many years and was impeding the overall values of the entire community. Although the lender had paid the delinquent dues, they did not appear to be in any hurry to market the unit.
Several members of the board approached the bank about selling the foreclosed unit to the association. The bank was receptive to the idea and even helped the association model a renovation budget. The association entered into an HOA loan to fund the purchase and renovation of the unit. They voted to raise their monthly dues to repay the loan. There was a unanimous
consensus to renovate the neighborhood eyesore.
Once the renovations were complete, they sold the unit. Housing values showed material improvements once the blighted property was gone.
Adding an amenity like a clubhouse could be a great reason to borrow more money for an expansion or aquisition
Owners in a Southern community knew their dues were low compared with other HOA communities in the area. They also understood that they were in a dilemma. Their property values were depressed because they had no amenities. However, their dues were artificially low for the same reason.
The board undertook a study to assess and project how the market values would react if the HOA were to build a community pool and clubhouse. The results were compelling.