HOA Fees, Is This the Answer?

We were in Denver visiting relatives. They are in the early stages of thinking about having a second home in a warm climate and were asking me about our place in AZ. I said we have a great place in AZ and I love it there, but I added, there are problems.

What kind of problems they asked. Well I said, I don’t pay close attention, but as near as I can tell there are two groups who don’t like each other. I think one group is called the Jets and the other the Sharks, but I may have that wrong. If one group is for something, the other is against it and vice-versa. I think they have dance offs to settle disputes.

The big issue now is fees and planning for the future. Of course, that is the issue for most HOAs. Because of Inflation, fees are either going to increase or quality of life and the campus will decrease. With the current tariffs, which are the equivalent of putting gasoline on a fire, I suspect inflationary pressure on fees will be even greater.

Just as I was the case when I was the Board chairperson of our HOA in MT, I have three objectives for fees. Maintain and improve the campus, fund deferred maintenance, and equally if not most important, maintain and hopefully increase property values.

I have two serious macro concerns for the HOA communities in which I live in MN and AZ.
1] The threat to social security benefits is very real. A reduction in social security benefits will devastate many if not the majority of retirees. Minimally, the Social Security Trust Fund will be depleted in 2035. Unless Congress continues to fund the current monthly benefit for retirees, benefits will reduce to less than 80% of their current benefit. A 20% reduction in social security income will make living in their current residence or having two residences difficult which could lead to an increase in property on the market and a decrease in buyers. In the current political environment, I think it is very unlikely social security benefits will be maintained.
2] Currently retirees on Medicare pay 15% of the total cost of Medicare, workers pay 34% and the balance is paid from general revenues. Again, in the current political environment there is a strong desire to increase the share of Medicare paid by beneficiaries and reduce the amount paid from Federal General Revenues. [Note: Medicare is different than Medicaid which also faces significant cuts in funding.]. If this were to happen, this would have an an effect on many retirees disposable income which in turn may affect their ability to own property, especially in HOAs that are primarily active retirement communities.

Given the above, is the proposed assessment in our AZ HOA reasonable? A little background. A couple of years ago our AZ HOA bought a piece of property to add space for our various clubs. In part, the purchase was based on misinformation provided by the GM at that time. Once the misinformation became public, the Board at that time should have asked for the GM’s resignation immediately. That they did not is on them. Would having correct information changed anything at the time, maybe, maybe not. But the reality is the past is irrelevant because we own the property and have limited choices going forward. Following are some options.

• Sell raffle tickets with the winner getting the property. Does not sound promising.
• My personal favorite, flatten the current building and build indoor pickle ball courts. This makes no economic sense, but I like indoor pickle ball.
• Turn it into a cannabis dispensary with a greenhouse. Though cannabis sales in AZ decreased recently, overall it is a huge market. Locals who work there could receive a discount on the product. And if I correct on my above outlook, could be a lot people looking for a way to mellow out.
• Turn it into rental property. Cannot imagine any potential renter would lease it without a lot of work, so might as well fix it up for ourselves.
• Sell it and take what is likely to be a big financial hit and that assumes a buyer could even be found.
• Continue with the development project knowing it is likely to cost a lot more than the current projections. The objective being higher quality of living now and an improved campus enhancing future market values.

What to do about HOA fees? Its a challenging and not easy question to answer question.