Analyzing the financial health of an owners association may not be so clear cut, especially if the accounting is done on a cash basis.  The reason for this is that there may be some assets and liabilities not listed on the P&L and Balance Sheet.  These items include Accounts Payable and Accounts Receivables, and the amounts can be significant. 

Under cash basis accounting, an expense or receivable is not recorded until cash changes hands.  The only place you will see these items is on the AP and AR report which won’t hit the General Ledger and financials until paid or received. 

So how does the association operate when there is a significant cash shortfall? Through special assessments, budgeting a contingency line item, having a budget that’s already padded for this situation or even borrowing from Reserves.   The latter should be used as a last resort and I will address this issue on a different post.

Although cash basis accounting does not paint an accurate picture of the financial standing of an owners association, it should be supplemented with additional disclosures and reports.


Reserve Account- This is money collected through assessments and set aside for large capital expenditures such as parking lot repairs/re-paving, or roof repairs or replacements.  The amount to be collected through assessments is determined by a reserve study which outlines the estimated amount of the capital expenses along with the timing of them.  For example, the study might conclude that the roof on all buildings will need to be replaced in 5 years at a cost of $40,000.  This amount is then to be collected through Reserve Assessments if there aren’t sufficient funds in the account already.

Now that we understand what this money is intended for I’ll continue with my story.  The BOD were excited at the idea of getting several thousand dollars refunded to them so they approved the refund.  A few months passed and the board member that persuaded everyone else to refund money from the reserve account sold his unit.  The buyer, did not properly perform his due diligence and bought into an Owners Association that needed extensive capital improvements!  Since there isn’t sufficient money to cover the expenses, there will most likely be a Special Assessment that every owner must pay in order to cover the cash shortfall.  The amount of this Special Assessment will most likely be…you guessed it, the amount that was refunded to everyone.

The moral of the story is to dig deep in the financials of an Owners Association that you are looking to buy into.  Look over the BOD meeting minutes, Reserve Study, and Reserve Account to assess if it has been properly funded.  Otherwise, you will get a bill for a Special Assessment for several thousand dollars.

Don’t forget to rate, comment and share my post and I’ll keep them coming!

Home Owner Association (HOA) dues are driven by both fixed and variable costs. In some instances the property owner will get an additional assessment sometimes called Special Assessment for expenses that were not budgeted for or for cash shortfalls.
Fixed costs are monthly/quarterly maintenance costs such as landscaping or pest control. They also include the management fees the managing company charges the association for their work. Variable costs include utilities and unforeseen expenses such as plumbing repairs and repairs due to theft and vandalism. Additionally, if there are delinquent property owners that have not paid their assessments there may be a line item budgeted for this. It is ultimately the owners that are current on their payments that are paying for the shortfall in assessments in one way or another. Either through the increase in the assessments to make up for the deficiency, or through a special assessment.
Before purchasing a property that is part of an owners association, it is a good idea to review the following documents: current budget, annual financial report package, board and member meeting minutes delinquent owners and their portion of the budgeted dues, CC&Rs and Bylaws. Also, look at the amount in the Reserve account; this should be well-funded in order to replace roofs, parking lot repairs or building structures. If the association has not reserved adequately for such an expense, property owners will get a surprise bill for a portion of the expenses which can be in the thousands.

I recently had the pleasure of talking to 3 executives involved in Commercial Real Estate acquisitions. I will share with you what they had to say in regards to landing a position as a real estate analyst which is what I am interested in.  The discussion can be summarized into 3 areas: education, training/experience, and NETWORKING. The last area was highly emphasized and carries as much weight as the first 2.

Let’s first discuss the type of education needed in the field. A B.A. in Business Finance, Accounting or Math will help tremendously as you will be working with numbers, finding inefficiencies, building complex models, analyzing leases, rent rolls, and financial statements. A degree from a top-tier university isn’t necessary unless you’re planning on working for a company like Blackrock, but it will help separate your resume from others. I asked the executives what their opinion was in obtaining an MBA and although 2 executives had one, the consensus was that you don’t need an MBA for this position. All three of the execs called an MBA a “check box” on a resume, a very expensive check box.  They said if you have the time and money go for it, but it will only be a deciding factor in landing an interview.  One of the execs said he has a “street MBA” and said time would be better spent getting more technical experience and networking. Organizations like the Urban Land Institute (ULI), NAIOP the Commercial Real Estate Development Association were recommended which offer various courses and webinars in CRE Finance. Additionally, acquiring the CCIM designation, getting the Argus DCF Valuation certificate, and taking several advanced courses in MS Excel was strongly encouraged. One person even suggested going for the CFA which is considerably less expensive than getting an MBA.

Of the RE Analyst job postings I’ve read, all of them require some type of analyst experience. I asked how does one go about getting this experience if no one will hire you without experience. All of them agreed this was a catch 22 and two of them said they just got lucky and kind of “fell into” their first analyst position. One of them said this catch 22 is the case now because so many companies are operating very lean that they want to hire someone that is going to come in and hit the ground running.  They don’t have time to train, but as the economy turns around there will be opportunities for those with limited experience.  One of the execs I talked to said they started out as an underwriter at a very well-known institution so that may be a possible route to break into the position.  One other person said they started out as an assistant for a broker and he strongly suggested this route. He said the pay will be minimal, consist of long hours, but after a year or two you’ll learn the language, build relationships and know who the big players are in the industry.  This moves the discussion in to the last area which is networking.

To be successful in CRE, you need to meet lots of people and build relationships because it’s not who you know but who knows you.  I won’t go into the how to’s of networking here, that’s a whole other discussion.  The point is that after spending all the time, and money in additional training, it won’t do you any good if you still have to submit your resume to a recruiter or fill out an online 20 page application that will probably get placed in a stack that no hiring manager cares go through.  You need to move to the top of the pile and to do this you have to go out to networking events and seminars and meet people.  No one said it better than in a recent article I read, “you need to treat your life as one giant networking event, and meet as many people in your field as you can.”  Great organizations that have networking events are the ULI and NAIOP, you can also get involved with your university’s alumni organization.  Take action today and meet someone new, connect with me on LinkedIn 

I want to share some valuable resources that you can use to further your knowledge of using the Argus software or if you want to get certified.

If you are looking into taking the 3 day course and exam, but don’t want to spend upwards to $1,000  you can contact your local university.  Try contacting the head of the Real Estate Department and ask if they will be offering the certification course.  They usually get grants and the class, exam, and 6 month of software subscription will run about $300.  This also includes the step by step book in addition to networking with other real estate professionals.  The class typically goes from 8-5 Fri-Sun and half day for testing on Monday morning.

You can also contact Jill Newton who is the Certification Manager at Argus, she travels all over the US teaching the Argus certification course.  Her email is

This video shows you how to download a trial version of the Argus software

Here are some sites I found that offers additional advance training not found in the 3 day certification course.

If you are located in Orange County/Los Angeles, you can take a course at UCLA through their extension program which is open to anyone

At Cal State Fullerton, you can contact Dr. Michael LaCour-Little , he runs the Argus certification program and can get you in if there are seats available.

At UCI, you can contact the Merage Real Estate Association for their next upcoming training seminar

I recently got certified and I felt the class was too accelerated and not enough material was covered.  I took tons of notes and have reviewed the training manual, but the software has such a learning curve that you have to continue to use it or you’ll lose it.  I will continue to update this posts as I find more resources.