Beyond the infinity pool and swim-up bar, a strong association is built on sound budgeting, comprehensive insurance, minimal special assessments, and a transparent board. Here's what to look for.
This is a question we often encounter from our clients. Now, don't get us wrong — we enjoy all those nice amenities a condo offers just as much as the next person. But for this conversation we are going to look past the infinity pool with beautiful ocean views, the swim-up pool bar, and the fully equipped fitness center. We are going to examine something a bit more boring… yep, you guessed it: the finances.
From our standpoint, a good, strong association is characterized by a blend of robust financial health and transparent operational practices. We advocate that prospective buyers delve beyond the surface when considering membership in any association. It's essential to determine if certain components are not only in place but also effectively managed, ensuring that the association is fortified against financial challenges and poised to thrive even in adverse circumstances. While this list is not exhaustive, here are a few key items (and some suggested guidelines) that lay the foundation for a good, strong condo association.
Sound Budgeting
A well-structured budget forms the bedrock of financial stability. Accurate projections of monthly income and expenses empower associations to allocate funds appropriately, ensuring all aspects of the association are adequately preserved and maintained. A proactive budgeting approach mitigates the risk of financial crises and establishes a solid groundwork for continual maintenance, repairs, and community enhancements. Additionally, associations should maintain ample reserves to address unforeseen situations that might fall outside their insurance coverage. Commonly, having reserves equivalent to 5–6 months of budgeted expenses, and continuing to build reserves equivalent to at least 10% of the overall budget annually, is considered prudent across most associations.
Comprehensive Insurance
Adequate insurance coverage acts as a protective shield against unexpected events like natural disasters or accidents. Associations that prioritize obtaining appropriate insurance underscore their commitment to the well-being of their residents and position themselves for financial stability in case of a liability incident or disaster. As insurance policies can vary greatly among associations, it's imperative to grasp the extent of coverage, policy deductibles, and sub-limits (a limitation or cap on certain coverages). Understanding these nuances aids in making informed decisions about potential coverage gaps. We like to look for 100% replacement cost coverage and policies without sub-limits to ensure adequate and complete coverage in the event of an accident or catastrophe.
Mitigating Special Assessments
Special assessments — temporary fee increases covered by association members — are often invoked to address unforeseen and unplanned issues. To gauge an association's financial prudence, it's vital to comprehend the reasons behind such assessments, their duration, and whether the association foresees the need for similar future assessments. Investigating the history of special assessments can shed light on the association's financial stability and operational effectiveness. Frequent assessments may indicate underlying issues that the current condo fee structure cannot sustain, potentially hinting at more permanent increases in association dues down the line. Typically, special assessments should be just that — special, not often, and with sound reasoning. We don't like to see more than one special assessment over the last 2–3 budgeted years. If there is more than one during this time frame, it's not a total deal killer, but you'll want to dig deeper.
The Essence of a Strong, Transparent Board
Beyond these financial elements, the efficacy of all these aspects relies on a robust and transparent board of directors. It's a good idea to establish communication with a board representative to gauge their enthusiasm (or lack thereof) about the association. As a potential future owner, the board members will play a pivotal role in representing your interests within the association. Therefore, it's important that you feel satisfied with the information you are receiving and confident that the future of the association is in line with your goals and expectations. We recommend asking the association about the key factors mentioned above and performing as much due diligence as necessary to determine if this is a "good" association for you.
Equally important in your quest to find a condo association is to partner with a lender who understands these facets and can provide important insights on the mortgage process for condo associations, especially here in the USVI. Virgin Bay Mortgage is an approved and local USVI lender that has been lending for over 30 years for condominiums and all home property types. If you need assistance or information about the mortgage process for condos in the USVI, reach out to Virgin Bay Mortgage today — call 1-340-714-0033.