Financing Private Road Repairs

A 300 unit association in Florida had been patching, maintaining and repairing their gravel road for years. They had lived with the situation for a long time. To make matters worse, each time it rained, the old and dated culverts flooded. Unfortunately, it the rains in Florida were all too frequent. Things had gotten so bad that the budget for road repairs had recently become the fastest growing expense. Their annual road repair budget was nearing $100,000. Given the current rate of growth, the street repair budget would soon overtake landscaping and trash removal expenses.

A Dirty History

When the association was first started, the developer made all sorts of unfulfilled promises. At the top of the list, was paving the entryway into the community. He fell on hard times and failed to live up to his hype. For the past 20 or 30 years, boards simply passed the buck. They knew there was little energy around a few thousand dollar assessment to pave the road. So they buried the repairs in their annual budgets and did the bare minimum to keep the road from collapsing.

A few years ago, one board member had a burst of energy and began exploring a conversion. His plan was to shift the burden from the community to the county by converting the HOA owned road to a public road. On the surface, this was a good idea. But after he had spent a bit of money on legal fees, he realized that there were conditions that needed to be met before this could be contemplated. One of the conditions was bringing the road up to code. The county would also impose higher taxes on unit owners in order to maintain the roads.

Of course, this condition took him back to square one; minus the legal fees. They were in a catch-22; if they had the money and interest in bringing the road up to code, then they wouldn’t need the county to take control.

What Options Did They Have?

The board felt they were back to square one. They could continue pouring money into maintenance, they could re-approach the county or they could issue a special assessment for several thousand dollars to finally pave the road. None of these options stood out as the obvious right choice.

The board reached out to Arch Capital Solutions to help them identity alternative financing solutions. Before proceeding, Arch helped the board quantify high-level objectives.

  • The overarching primary objective was to stop wasting money annually on “patchwork”
  • A secondary objective was paying for it without forcing unit owners to meet a large upfront assessment
  • Finally, the board wanted buy-in from the community

They quickly tried to quantify these objectives through a budgeting and prioritization process. The scope of the project was identified:

ProjectTotal BudgetBudget Per Unit
Road Paving875,0002,917
Culvert Repairs100,000333
Contingency and Misc.25,00083

Financing Alternatives

Arch helped the board consider several financing structures ranging from a modest upfront assessment combined with a loan to borrowing the entire cost for 5, 10 or 15 year terms. Ultimately, the board decided to present 3 options to the unit owners.

Monthly loan payments

Project5 year Loan10 year Loan15 year loan
Road Paving543022
Culvert Repairs632
Contingency and Misc.211
Totals (per unit)623425
Total monthly payment18,60010,2007,500
Annual loan payment223,200122,40090,000

The choice became immediately clear. The association could enter into a 15-year loan with annual payments of $90,000. This amounted to roughly the exact number they had been paying and budgeting for annual maintenance and repairs. Moreover, they knew their annual maintenance and repair bills were increasing every year.

Unit owners voluntarily accepted this plan and embraced a modest increase in dues to begin building a properly funded reserve fund so that the new road could be maintained and replaced many years down the road. They wanted to prevent future board and communities from having to repeat this situation as the new road ages.

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