How you handle your HOA reserve funds really makes a difference in the successful running of your association. The quality of the strategic planning of your homeowners association can actually make or break your community. It’s also really important to the longevity and future investments of your association.
You might be tempted to just have your banker handle the investment planning, but it’s worth considering other options. If it’s an option for the homeowners association, think about hiring a financial advisor. They can provide your board with advice on properly managing your reserves, plus assist in tracking them. Interest yields are always changing and it can be hard to follow those changes without a professional’s help.
But if paying for an advisor is not financially feasible for your HOA, your board members will have to take it on themselves. In order to properly set your investment goals, you should have a clearly written and defined investment policy. This usually includes:
- A plan that is fully risk-free, which means full FDIC coverage. In some cases, you might need a strategy that is more aggressive.
- A trade-off between yield, liquidity, and safety. What this means is that if an investment plan is more liquid, the return is usually lower. And a potential yield that is higher generally means a more risky plan.
What the board must do is find the best balance between yield, safety of your HOA members’ money, and liquidity. An easy guide is to be sure the majority opinion of your members should correspond the level of risk taken.
Choosing a Bank
The following should be considered when choosing a bank to handle your reserve planning:
- The risk of the investment and depositor insurance options
- Access to the funds and deposit term compared with the provided rates
- The amount of experience the bank has in working with and handling HOA reserves
To make sure you have a prosperous homeowners association, the key is responsibly handled growing reserves and safe investing. It may take some time to properly plan a strategy, but the work pays off in the end. Always work towards improvement and stay on top of tracking your HOA’s reserve funds.
For more information on reserve planning through HOA management, contact Cedar Management Group!