The HOA Financial Crisis—and what will solve it

In addition to Dials, I run the project committee at my condo, a 348-unit high-rise called City Center Plaza. As head of the committee, I oversee capital planning, the process of allocating our limited reserve funds toward the highest-impact projects, as well as advising the treasurer on how much funding we need budgeted for future projects.

It’s a big job, and a decade of neglect has left things in rough shape (shocker). Take a look at our reserve study (above): 22 past-due projects costing more than $1.5 million. Naturally, money we don’t have, though with $800k in the bank, we are working it down; it’s a lot better than when I moved in, four years ago, with $400k off the books owed to vendors, and $50k in the bank. But that $800k is peanuts next to $5-10 million in deferred maintenance. And sadly, our condition is the norm: 70% of associations are underfunded, according to Buildium. If you can believe it, the board of the collapsed building in Florida was better than most—they had a plan, outlined in a letter urging homeowners to approve a $15 million plan of remediation. But with nothing saved, and a shortfall of $80-300k per unit, the die was cast. Accumulating that kind of funding is the project of a decade–maybe two–not a year.

And so you have it: the HOA Financial Crisis. 45,000 communities in California alone, with deficits of thousands, even tens of thousands, per unit. “American Local Governance in a Nutshell”, as Strong Towns describes it, situated in a broader crisis of disrepair affecting everything from dams, to bridges and space observatories.

No single person has the power to cause a problem of this scale. The HOA Financial Crisis is a product of broken feedback loops, bad incentives, and failed accounting/measurement systems. The good news is, recent advances in sensing and perception have made it inevitable that repair and maintenance will factor into price.

If you what to see how, read on.

Root problem: good capital planning doesn’t affect price

Capital planning is the set of activities ensuring a building stays in good shape long-term: keeping inventory, developing a plan, and carrying out the plan, including accumulating funds, and spending them on the highest-impact projects. Today, the quality of this process—how well a building is kept and the state of its reserves—doesn’t meaningfully influence price.

It should. I was surprised Wells Fargo’s quoted rate included a 0.25% premium on my condo loan, but they might have the right idea. Apart from the borrower’s ability to pay, the #1 thing mortgage lenders care about is not lending too much—on a $500,000 property, a conventional 20% down mortgage leaves $100,000 of buffer (the buyer’s equity) that all but eliminates the bank’s chances of loss. But crazy things happen—like Champlain Towers, where the board’s power to assess might result in a $150,000 lien on the unit, making that $500,000 property unsellable above $350,000 (assuming the seller has to clear the $150k assessment lien). That’s a $50,000 write-down for a lender, which given typical mortgage underwriting margins, is catastrophic.

It’s even worse for insurance: want to be first in line for losses when a caved-in roof causes tens of thousands in equipment damage? No, obviously.

Want to see fireworks? Tell a community their property prices are falling because buyers can’t get loans (banks won’t touch a place), or worse, the board can’t find insurance—all of a sudden, a lot more residents are going to show up, and board meetings will be a lot less dull.


So where’s the data?

It all starts with inventory. What’s in the building? Where’s the master list of pumps, pipes, and elevators, along with dates of installation, service, inspections, and which vendor did all of it?

Without inventory, there’s no way to know whether a project plan is realistic, how much funding should be set aside, or what’s most important to service next. It all starts from inventory. Typically, a couple things go wrong.

First, reserve studies aren’t good enough; reserve analysts are great at estimating component lifetimes and usually have project cost databases, but an analyst’s list assembled in half a day will never be as thorough as something done bit-by-bit over time by a diligent manager (especially onsite). Let the expert (reserve analyst) do the expert’s job (assessing lifetime)—it’s best if the association brings its own list.

Second, the association must own this data, and the system that houses it; vendors come and go, as well as managers, and boards. Inventory, repair, and maintenance data must be handled like accounting records—think Quickbooks—placed in a special system with custom-built permanent storage, with proper access controls and multi-user functionality. Ideally, a field-ready mobile application, that works even in the basement and has your entire complement (potentially dozens) of vendors able to log in and record work.

And third, entering inventory is a hassle. Making data entry as easy as possible, or even eliminating it altogether, is a long-term goal for Dials.

And how do we ensure it’s fresh?

Simple: solve someone’s problem.

Associations need better planning tools, and reminders to keep things updated. Over the next couple of months, we’re going to build the best set of capital planning tools out there, that will be fun to use, and help associations stay on track with their goals.

Using your inventory data, we’ll help you create a project plan, calculate how much you need to fund it, and guide you toward hitting your savings and operations goals.

If we can help even one association budget better, it will be worth it for us. If you want to level up, sign up for updates as we build (below) or try us out at

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