Borrowing Smart Navigating the Capital Financing Process

Sue Stevens became president of her Arlington, Texas homeowners association in 2003, one of her first orders of duty was solving a vital security issue to the residents—how to protect their homes, which were highly visible from several major roadways—from robbery and vandalism.

Deciding to gate the 300-unit community of single-family homes was a huge undertaking, especially a financial one. The estimated cost of the project was $100,000, which forced the HOA to conduct an assessment.

"We voted for an assessment to pay for the project over a three-year-period and borrowed at a highly favorable rate from a local bank, with the common land owned by the association pledged as collateral," explains Stevens. "We've since done an additional assessment and will pay the debt off by the end of this year and then go about conscientiously establishing a reserve fund because, as a gated community we are now responsible for street maintenance."

Coming Up With Funds

A major repair or renovation project—such as a roof or window replacement, painting, siding or landscaping project or even an expansion of the association's recreation facilities—can become a tremendous headache for an association board if not properly handled. How can an association get capital improvement financing needed without straining the existing budget?

When Stevens approached the bank, she treated the transaction like she did when she purchased her own home. "We wanted the best possible interest rate and we wanted to make sure the papers were drawn up properly and they couldn't foreclose on it," says Stevens. "It's the same thing as getting your own home mortgage—it's a mortgage on your neighborhood literally with same degree of care."


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