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Oh boy. If your reserves ONLY cover a fraction of the building's TRUE maintenance costs then you DO NOT have a strong reserve.
I'll try again.
An AOAO's minimum reserve account is based on the projections of a reserve study that indicates the remaining life cycle of components over a 20-year period. The reserve study only focuses on components that last 30 years OR LESS. So any component that is slated to last 30 years or more and needs repair and/or replacement needs to be funded by a special assessment. These items include the following -
1) all glass systems
2) mullion systems
3) window systems including seals
4) Hand railing
5) All structural concrete
6) All non-structural concrete incl columns, girders, lanai overhangs, architectural overhangs and details, eave overhangs
7) Scupper systems
8) Walkways and driveways (structural)
9) All structural steel
10) All rebar
11) All potable water supply piping
12) All condensate drain systems
13) All storm drainage systems
14) All sewer piping
15) All electrical wiring
16) All conduit systems
17) All disconnect and safety systems
18) Exterior ladder systems and rooftop access hutches
19) Equipment awnings and screens
20) All fire suppression systems including controls, fire sprinklers, dry stand pipes
21) Thermal and acoustical insulation
22) All entry doors including associated hardware
23) Fences/walls
24) Parking bollards and concrete wheel stops
25) Interior drywall
26) Ventilation duct work
27) ETC ETC ETC
A 7% cap rate is a far greater ROI than a 3% cap rate. I buy turnkey properties. I'm not into kicking out a tenant and doing a renovation. I compare the properties equally at the same point in time.
I've also stated cap rates are just one of many metrics one should use.
Think about it whtviper. NOI/purchase price equals cap rate. $700,000 at a 7% cap rate equals a NOI of $49,000. At 3% the NOI would be $21,000. Obviously these two Waikiki condos are NOT comparable. The market is not going to pay $700,000 for $21,000 of NOI when you can get $49,000 for $700,000! See how you are not comparing apples to apples?
The problem is that you are looking at this BACKWARDS. An investor will look to see what the market cap rates comps are. Let's say we are in the market for freestanding commercial buildings. We will get the sales analysis of several sales of similar buildings. Let's say the properties have NOI of around $50,000. Comp 1 sold for $626,000. That's an 8% cap rate comp. Comp two only has a NOI of $45,000 and sold for $548,780 at a cap rate of 8.2% Comp 3 has a NOI of $52,000 and sells for $658,228, a 7.9% cap rate. These are your cap rate comps. A buyer analyzed the NOI and CREATED his cap rate with his purchase price. Now you are in the market and have a property with a NOI of $47,500. Now assume you thought 7% cap rate was good because you did not look at the comps. You'd be overpaying at $678,571! But you are going to look at your comps and determine the range of the cap rates and select a cap rate that best reflects the NOI and property you are buying. So let's say you think 8.1% is correct. $47,500/.081=$586,420 That's the current market value based on the cap rate comps.
This is not saying it is more profitable than the 7.9% cap rate property. In fact you are saying you will pay less for the property because you feel there is more RISK in collecting the stated NOI.
You are talking about something completely different than I am. I don't own broke ass properties where owners live paycheck to paycheck and pay the minimum balances. Penny wise, pound foolish.
Location: not sure, but there's a hell of a lot of water around here!
2,682 posts, read 7,575,502 times
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Quote:
Originally Posted by honobob
You are talking about something completely different than I am. I don't own broke ass properties where owners live paycheck to paycheck and pay the minimum balances. Penny wise, pound foolish.
You own properties where owners pay MORE than the monthly maintenance. Are these, by any chance, state run units in Kaneohe?
You own properties where owners pay MORE than the monthly maintenance. Are these, by any chance, state run units in Kaneohe?
Inquiring minds need to know
Is that where you're posting from because you're crazy if you think I said we pay more than the maintenance payment! Our monthly maintenance covers current and anticipated expenses at a reasonable guesstimate and adjust yearly. Preparing for the minimum expense will end you up in the poor/crazy house!
Location: not sure, but there's a hell of a lot of water around here!
2,682 posts, read 7,575,502 times
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Well, a maintenance fee is a maintenance fee. There is no 'minimum'. And you stated that you payed more than the 'minimum', which would lead one to assume that you are paying more than the monthly required amount. Which would sound kind of crazy. But, who am I to judge. I just live here.
Well, a maintenance fee is a maintenance fee. There is no 'minimum'. And you stated that you payed more than the 'minimum', which would lead one to assume that you are paying more than the monthly required amount. Which would sound kind of crazy. But, who am I to judge. I just live here.
Dang Dude I live here too. I referred to people that paid minimum balances in the context of the PJ guy talking about AOAO minimum reserve accounts. Are you flirting with me?
Location: not sure, but there's a hell of a lot of water around here!
2,682 posts, read 7,575,502 times
Reputation: 3882
Quote:
Originally Posted by honobob
Dang Dude I live here too. I referred to people that paid minimum balances in the context of the PJ guy talking about AOAO minimum reserve accounts. Are you flirting with me?
You are talking about something completely different than I am. I don't own broke ass properties where owners live paycheck to paycheck and pay the minimum balances. Penny wise, pound foolish.
Actually no I'm not. I'm talking about maintenance fees/HOA dues - same thing as you. I guess the owners of Yacht Harbor Towers live paycheck to paycheck, right? Yacht Harbor Towers owners had to pay $40-$80K in a one time special assessment to fix their failing building. And 2bdrm owners are still paying $1,200/mo for maintenance fees ON TOP of that nearly 6-figure special assessment.
Even owners of luxury buildings get whacked with crazy special assessments. Here is one in Boston I'm sure you'll appreciate -
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