RealManage Insight

How to Plan and Pay for a Major HOA/Condo Reconstruction Project

by Staff Writer on May 8, 2018 8:09:00 AM

A major HOA/Condo reconstruction project requires careful consideration and research. Before the shoveling of any dirt comes two key elements crucial to a successful project:

  • A strong understanding of the HOA finances and a thorough understanding of available finance options. 
  • Specific details and specifications of the project.

The two elements stress the importance of a) knowing what you want and how you want it done and b) knowing how much the project is going to cost and figuring a way to pay for it. A major reconstruction project has the potential to become overwhelming. By taking the following steps, your HOA will be better prepared from start to finish.


Planning for the Project


1. Conduct a Site Review

A site review is helpful in determining the scope of work required for the project. Site reviews mostly related to large items, such as a roof or walls. Reviewing a site takes time as it requires studying those items requiring replacement. Expect a solid site review to last anywhere from 3-4 weeks. This is also a good time to consider how the project might affect residents. As with any construction project, it's best to find ways to conduct the work with as little interruption to daily life as possible.

2. Construction Management Project Specifications

In order for contractors to provide accurate bids, they must know as much detail as possible. The construction management project specifications include topics such as safety protocols, local compliance requirements, on-site sanitation, and payment arrangements.

3. Solicit Bids

Now is the time to solicit bids from reputable contractors. Choose only those contractors with proof of insurance and licenses, and who have favorable reviews. Contractors selected to bid on the project will make a site visit. Be sure to have an HOA reconstruction manager or board member meet the contractors on- site. Set a deadline for receiving bids and stick to it. It is the responsibility of the construction management team overseeing the project to select the winning bid.


Paying for the Project


1. Applying for a Bank Loan

Depending upon the size and scope of a project, an association may use reserves to finance the reconstruction. In the event of an emergency or large project, a bank loan may be necessary. The first step in this process is to conduct a reserve study. A reserve study does several things:

  • For the association, it is a helpful tool in assessing not only the finance needed for the project but also the future needs for maintaining the property.
  • For the bank, it is a helpful assessment of whether the association will be able to repay the loan.

2. Preliminary Financial Assessment

The bank will conduct a preliminary financial assessment to determine the source of the association's repayments. This process takes anywhere from four to six weeks and involves a variety of factors, such as association size.

3. A Proposal

Once the bank makes a proposal, expect the bank to finance about 70-75% of the total project. Check your association's governing documents to learn if a  vote of the membership is required for official loan acceptance. It is important that all members understand the loan is considered an unsecured commercial loan to the association. It is not a loan to the individual members of the association.


Moving Forward


Only a few more steps are required: the signing of the contract, the Notice to Proceed, and the preconstruction site review. While an HOA reconstruction project is both stressful and exciting, it is indeed a marathon and not a sprint. Several steps take more than one week to complete and taking each step seriously is vital to averting project disaster. For more information regarding HOAs and project management, contact us today.

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