Capital improvement projects are an important part of maintaining and improving the value of a condo association property. These projects can include major repairs, replacements, and upgrades such as roof replacements, window replacements, and landscaping renovations.
Despite the importance of capital improvement projects, funding these projects can pose significant challenges for associations, especially if they do not have sufficient reserves or are faced with unexpected expenses.
In this post, we’ll discuss three common ways condo associations can fund capital improvement projects and offer tips for determining which approach is best for your association’s needs.
Ways to Fund Condo Association Capital Improvement Projects
Capital improvements can be a significant expense for a Chicago condo association, and it’s important to have a plan in place for funding these projects. Here are three ways your condo association can fund capital improvements:
1. Tap into your reserves: A reserve fund is money set aside for major repairs and replacements that are expected to occur in the future, such as roof replacement or elevator maintenance. By contributing to a reserve fund on a regular basis, the association can accumulate the necessary funds to pay for capital improvements when they are needed. Funding reserves should be part of your board’s annual budget planning process.
2. Levy a special assessment: Special assessments are generally not popular with your association community, but they can be an effective way to fund capital improvements that are unexpected or not covered by the reserve fund. A special assessment is a one-time charge to owners to cover the cost of a specific project or repair. If the board finds it necessary to levy a special assessment, it’s important to communicate the need for the assessment clearly and provide as much notice as possible. To learn more about special assessments, be sure to read this post.
3. Apply for financing: If your association does not have sufficient funds in the reserves or wants to spread out the cost of a capital improvement over time, financing may be an option. The association can obtain a loan from a bank or other lender to pay for the project and repay the loan over time through increased fees or special assessments. However, it’s important to carefully consider the cost of financing and ensure that your association can afford the payments.
By understanding these funding options, associations can ensure that they have the resources necessary to maintain and improve their properties for years to come. The best approach for funding capital improvements will always depend on the specific needs and financial situation of your condo association. It’s wise to consult with a financial professional or association management company to determine the best funding strategy for your Chicago condo association.
To ask your questions about funding capital improvement projects, contact our team at First Community Management anytime by calling 312.829.8900.