It's a profound story of how reserve funds can go seriously awry—within months of buying an apartment in a new New York City building, David and all his new neighbors were informed that they would have to contribute out-of-pocket to help build the co-op's reserve fund. Each shareholder would have to pony up a month's worth of additional fees—which for David meant over $1,000. Final total: the residents coughed up around $45,000 to put aside just in case something went wrong.
To make matters much worse, instead of making smart investments and having excess funds for unexpected repairs, David's board went on a spree with the collected funds, spending $8,000 on new roof furniture, $100 on weekly flower deliveries, $8,000 on a wood cabinet to hold deliveries, and more than $11,000 to paint the lobby.
After this disaster, the board was ousted, and a new one voted in. The new board had to clean up the fiscal mess left behind by the old one, so they promptly increased monthly fees by 12 percent and assessed everyone again, forcing residents to contribute another extra month of fees.
Of course, David's building is an extreme case. But in today's economic times with increasing insurance premiums, expensive repair projects, and rising taxes, it's inevitable that sooner or later, just about every co-op, condo, or HOA development will have to increase the amount residents pay every month to keep the association up and running. Or do they?
Sure it's an easy method of generating revenue, but financial experts regularly point out that there is more than one way to raise cash when you need it, and even more ways to save money. Perhaps it's time for your association to review its methods of budgeting and look for more creative ways to add to the reserves instead of always hitting up residents for fees, assessments, and increases.