Kourosh Khoylou Podcast
Alex Arthur on Navigating Community Governance for a Thriving Neighborhood
Ever wondered what a HOA board meeting looks like behind closed doors? Strap in for a firsthand account of the trials and successes that come with managing a communal space. From the heart-wrenching lessons learned from a balcony collapse tragedy to the nitty-gritty of financial transparency and reserve funds, we navigate the complexities of building trust and ensuring the longevity of your investment. Alex and I share our experiences and the power of even the smallest environmental initiatives when a community bands together.
Wrapping up our insightful session, we discuss the vital role of selecting the right board members for your HOA and how they can make or break the community dynamics. Alex imparts wisdom on fostering a stronger sense of belonging and the direct impact of community events on overall satisfaction. If you've ever paid dues and wondered where that money goes, this episode is a must-listen, offering a masterclass on the power of engaged community living and how to make your association work for you.
Ever wondered what a HOA board meeting looks like behind closed doors? Strap in for a firsthand account of the trials and successes that come with managing a communal space. From the heart-wrenching lessons learned from a balcony collapse tragedy to the nitty-gritty of financial transparency and reserve funds, we navigate the complexities of building trust and ensuring the longevity of your investment. Alex and I share our experiences and the power of even the smallest environmental initiatives when a community bands together.
Wrapping up our insightful session, we discuss the vital role of selecting the right board members for your HOA and how they can make or break the community dynamics. Alex imparts wisdom on fostering a stronger sense of belonging and the direct impact of community events on overall satisfaction. If you've ever paid dues and wondered where that money goes, this episode is a must-listen, offering a masterclass on the power of engaged community living and how to make your association work for you.
Hello everyone. Today is April 2nd 2024. My guest today is Alex Arthur. Alex is a homeowner in a community, a recent MBA grad and has served as the president, vice president, treasurer and as a board member at large for his community association, genesee, highlands. Thanks for coming on the podcast, alex thanks, gross.
Speaker 2:Good to be back um speaking in a very different capacity this time. Yes, so yes, very talk about.
Speaker 1:Yes, this is very uh. This discussion is going to be much more tailored to a specific topic being community associations, which you have experience in. You, you know, even before you, you know, held all those positions. You, you know, you weren't even a homeowner. So what were you thinking, or what type of mentality did you bring into purchasing a home within a community Once you found out this has an HOA fee and you'll have to pay it every month?
Speaker 2:Yeah, it's somewhat of a surprise, especially as a young homeowner, a new homeowner, first time buyer. You know there's a lot of things that you just don't know about. When you get into being a homeowner a new homeowner, first time buyer you know there's a lot of things that you just don't know about. When you get into being a homeowner and a landowner and having some stake in real estate, and especially as a young person, that the lessons that you learn are very fast. They come at you really hard when you first buy a piece of real estate because you're stepping into a game that people are already playing right. These people have been playing this game for years. They're professionals, if you will right. They own and they reap the rewards of real estate. So they're essentially paid on the real estate that they own right, not liquid value, but an asset value that accumulates. So you step your toe into this game and all of a sudden you're playing with professionals.
Speaker 1:Yes, and when you step into a community I mean that's true whether you purchase a home that's free of an HOA and any type of real estate you purchase Then from that point on it's an asset, as you mentioned, and people like to think of it as a store of value, where you just buy it, think about it very little and then maybe in 10, 15, 20 years you can just sell it off for the you know appreciation in that asset value.
Speaker 2:Right, and with a house it's much more discreet. Right, you might have some city ordinances that your home has to adhere to, but when you're part of a community, you have to adhere to rules that spread out over all of the units. So the way that you accumulate value is much different than you would if you were just a distinct homeowner. Right, the value accumulates from your home in the same way that all ships rise with the tide. So really, the best way to enact value accumulation for your individual unit, aside from doing, you know, in unit remodels and little things here?
Speaker 2:and there is to put your hat in the ring and become part of that game that I was talking about, you know, which is making changes at a bit of a broader level. So that's that's where being part of an HOA comes in, right? Is you want to put your head together with other value-minded, like-minded, goal-oriented community members as a board to bring value to the community as a whole? Because when the community benefits, each individual homeowner benefits, because that community is the life raft that all of our homes are tied to. In a way.
Speaker 2:As the tide rises, all of our homes values go up, and that's why communities have standards and rules and all these little things that you don't know about as a homeowner when you first jump in. You know they may come up to you one day. You put a pot, for example, next to your front door, on a piece of dirt with a plant in it, and then you get a notice saying hey, you know you can't do that. That's part of community property. That's like. The first thing I heard when I moved into this townhome is that it is a part of a broader community and that things that are outside of the home are considered community property. So that's a very important lesson that new homeowners need to learn is what's your own property and what's community property what's your own property and what's community property.
Speaker 1:It's a big and um, it's a big distinction. And you mentioned something very important and I don't know if you went into purchasing a home and realizing this, but you mentioned in-unit improvements. You can improve your particular unit, make it, you know, add nice kitchen appliances, cabinets, do the whole nine yards. But you know what was the ship? It all rises and I don't know. But yeah, I don't know what that metaphor was. But you can bring improvements to your own asset on a different scale, by putting your own, you know, putting your own skin in the game, by dedicating your own time to be a board member of these assets which everyone shares.
Speaker 2:Yeah. So let's look at it this way, right? They say all ships rise with the tide, meaning that if you're part of a community and the value of the community and the organization increases because of operational efficiencies, because of strong vendor relationships and investments into the property and like-minded people making investments into the community that add value in community spaces, like you have pools, you have jacuzzis, you have all of these amenities right? By spending money on the amenities to maintain their health and maintain the integrity of the community, the community maintains its value and hopefully, over time, can actually increase the value of the community, thereby increase the value of each of the units in that community. That's a selling point when you want to sell your home is that there is a nice, well-maintained pool.
Speaker 2:Now, if somebody is trying to buy within the community and they look around and they see a degraded pool, they're going to think, okay, this is something I'm less willing to pay money for. So in that case, value of that asset is shrinking. So by putting your skin in the game shrinking. So by putting your skin in the game, by increasing the value of the total community, all of the homes in that community have a little bit better value and they're all rising together. So we try to lift all of the ships in this metaphor by increasing the value of the community, the way it's run, handling the organization like a business that has customers that it has to serve and that's a classic business metaphor, right, serving the customer. So that's really what we're talking about and by serving these homeowners like they were customers. That's how you increase the value of this organization, by delivering value to those customers because they're paying the association right every month, like you said, there's there's an assessment there's an assessment, and so did you realize this.
Speaker 1:Um, did you think that you were going to get in, go onto the board one day when you purchased, or is that something that you know what? How did you your time as a general member, as a non-board member, how was that? How you know?
Speaker 2:so, yeah, that's a great question. Um, there's certain layers to this that I that I've experienced, you know you. The first layer is you hear about the HOA as a term and then you experience it when you get an assessment, because you're definitely going to feel that fee when it hits your bank account. And then you hear about it by little things that get passed through the community, like little notes or flyers or emails, little notifications, and it becomes more present in your life. And when I first bought this place, I never really figured I would be part of the HOA, Because you hear about HOAs growing up before you buy a house or while your friends have homes and there is a stigma around HOAs.
Speaker 2:But the truth is, like I said, that they're very important for increasing the value of a community. So they serve a very important purpose. And at first there's going to be tension when it comes to doing anything in life that has value. Anything worth doing is worth working for. So if you want to do something, you got to work for it. If that doing is increasing the value of your home as part of a community, you've really got to put in the work and it's not just going to come for free and you can think, oh, somebody else might do it. But those other people are just like you and me, they're regular folks and it can be hard to get business done. But if you stick with it, like anything else, it can eventually happen in time.
Speaker 2:And and so the way it happened for me was just by being a community member, spending time in the park looking at things in the community, understanding how the interactions were going between myself, other members of the community and the board or the association, the employees of the association and wanting to make a difference and seeing that there was an opportunity to make a difference.
Speaker 2:I was originally, I guess, propositioned, if you will, to join the board by the late Dr Paul Parks. He's a nuclear fusion scientist at journal atomics for over 45 years. Um guy was brilliant, just a really intelligent man, um, especially as it came to physics, but also had a passion for his community, was known by all of his family members as somebody who really cared about the association, was very involved within the association, sometimes for better or worse. He was a strong personality, as one might expect if someone said, hey, you should join the board, you should come in and try and make some change, but people with personalities are always going to be present, especially in hoas, and that's just, uh, part of the part of the business.
Speaker 1:Um, yes, go ahead if, if you don't have a personality, you're probably just going to be a general resident and uh that's a mean thing to say.
Speaker 1:People have personalities, but if you're, if, if you don't have, if you're not like um, you know super strong in your beliefs and you know you don't have a real, uh, inclination to care about it and you just would rather give your assessment every month, not think about it as little as possible. Um, you're probably not going to be involved too much and you're just not going to be seen.
Speaker 2:Yeah, that's just how it is, and you can't enact your vision of value, right? That's ultimately what it comes down to is, if you have a vision of creating value, then joining a board is one of the best ways to enact value as a citizen. Because, really, hoas are the first entry level of government rules that are codified, at least in California, by the Davis-Sterling Act. That has outlines for what is a community association and what kind of rules a community association can pass and what can be done by the association from a legal standpoint. And that gives legitimacy to the association. It gives it power, and that power comes with the ability to create value for its customers, right? So it can either create value or take away value as well.
Speaker 2:Right, if it's not serving the membership, if the board, for example, is misallocating funds or not running the ship, well, that can really damage the value of the community. It can hurt the customers, can hurt the members, right? I will refer to the members as customers from time to time because I want to take it at some point and give a metaphor in a business context. But really that's what it is. It's membership that you serve, just like a business serves customers. So if you want to create value, you've got to start there.
Speaker 1:And I don't think people and I, you know, for a few years didn't realize like you're paying a lot of money every month to this entity, a lot of money every month.
Speaker 1:And so what is going on there? I mean, it's and I spoke to a homeowner of an HOA and you know it was a couple and one person was like, yeah, there's of people that want to know and are have, have a desire to be involved, but most homeowners are busy, you know, they have jobs, they have nine-to-fives, they uh, they get tired after their nine-to-fives. And then there's going to be something where some, you know, homeowner has a possibility of a huge, just a huge intrusion in their life that involves the community and needs to be. You know there could be a huge ordeal People with personalities that come in and you don't want it. Most people don't want to deal with that at the end of their day after working nine to five and so. But they are customers and even you know we spoke earlier like so yeah, I'm not going to bring it up, but I mean I'm happy to speak to that.
Speaker 2:I mean the way that the customers can get more involved or feel like they have more power in this relationship is by just knowing that they don't have to spend every single day invested. They can spend one day a month typically invested in the community. There is usually just one open meeting in a month. There may be more than one executive session, which we'll get into the difference between those two types of meetings, but usually these two meetings happen on the same day. They oftentimes happen back to back and the open meeting portion of the association is where the board speaks openly to the membership and is transparent in its business process, business processes with the membership, which that open session contains 80% of the business that gets done and usually the most important parts of the business. There is a little bit of business that gets done. It's usually not the most important part, but it is more need to know because it can involve personalities, people, sometimes a contract with a new contract with a vendor. These types of things work when they're getting discussed as they're just putting them down on paper. They will get done in an executive session, but ultimately the membership is made aware of any contracts that are signed in that open session.
Speaker 2:So, as a member of an HOA to be involved, just try and find that one day a month, and if you go to half of them, you're only spending 24 hours in a year, maybe. It's maybe a four-hour meeting six times a year, that's one day of the year that you're spending on this HOA, this thing that you're spending thousands of dollars a year with right. If you want to understand where your money is going, it's important to be aware, and the only way to be aware of what's happening is to go to a meeting. That's just the reality of it. So, regardless of what people want to do with their time, if they want value, they're going to have to put some amount of time into the association. It seems like a decent roi, if you ask me, because, um, I feel like our association's dues are actually pretty low. Relatively. They're pretty reasonable. We're currently assessing $370 a month.
Speaker 1:That's pretty low, we have 502.
Speaker 2:502 units, so it's a big association. The size of the association does help with keeping the cost down because we have a volume that we can work with, and so you spread that out right. The per capita costs get a little bit lower with the larger association. But there's also a lot of other things that you have to consider. You have more requests, you have more issues, you have more property, more property, right. So you do end up increasing certain things, but it does scale a little bit and really, ultimately, that's that's where I felt like I could make the most difference. That's where I personally wanted to make a difference. So that's that was the key value point, for why I joined was because I felt I could make a difference in a in a large way.
Speaker 1:There. There are a couple of things I want to hit there and then first I'm going to go with uh, so one was the people investing one day a month. And then the second is, um, the scaling. So first I'm going to do the one one day a month. Most people it is only one one day a month, but then that day comes and it's five, it's you know, 3 PM, three, 30.
Speaker 1:You might not even have that listed on your calendar or your personal, that it, whatever you use your reminder tool, that there's a meeting in an hour, in an hour and a half. So there's one thing most people don't have it there. Two, even if they do, they might look at it, be tired. See, oh, spring just sprung. We go, the sun is shining, sun is shining. Why would I go into, you know, a zoom call or a, uh, you know, in office clubhouse to go and just to this meeting. One thing is and this is a beautiful thing of ai and I think zaik really takes advantage of it and we provide all associations, residents, um, ai does transcripts. Now they don't even just do transcripts, they do summarizations and time stamping.
Speaker 1:So if your association you know, as as far if you're, if you're an association of Zayuq, you can expect that your meetings will be sent back out with summarizations and timestamps, and so this is something that really all associations should be doing, because it's a great tool and, you know, I think it really helps because you, you know, it is an hour and a half usually, usually, as you're in 90 minutes about. Uh, sometimes it goes less, but ours are long, personally, okay, wow, I know, I know they can be.
Speaker 1:they can be much longer, especially at the state, depending on the state of the association or um yeah some things going on, but again, even if it's longer than 90 minutes, realistically people don't want to do it, don't want to be there. So, um, people, associations need to find you know, I would help find providers that or you know, demand of their providers to provide them these. You know very powerful technologies. I mean this thing can literally you take two and a half hour long meeting. It provides you like 25 bullet points telling you at minute 20, they went from this topic to this topic and then it's just and you can just click and then go straight there. It's a powerful thing.
Speaker 2:That's really cool. I'm curious if you know, if it can, if you could calibrate that kind of a transcript so that it specifically denotes and never misses anytime there's a motion, because really that talks that gets into um, into the minutes, conversation, right, and taking accurate meeting minutes is how an associate association records the business that it does and and that that's an amazing ability if you can scale that. I mean there are a lot of old school types of methods for recording minutes. Some of them can be very expensive. Yes, is incredibly affordable relative to these old methods. So if you can just hit a few things as constraints within this problem and say like, as long as it will take whatever it does, as long as it can do these couple of things and anything else on top of that's just you know playing with house money and if it can hit that piece where it records motions, I can see that being incredibly valuable to the community you mentioned.
Speaker 1:Hey, siri, alexa, and it would just have to be kind of in. I mean, that would have to make. If you do it like that, then it would actually be structured into the software. It wouldn't be. You know, you're relying on this piece of artificial intelligence algorithm to be able to take that motion and then turn it into something. But I mean, either way, it's still a part of the same thing where it says you know, you hear the word motion, the same way siri hears.
Speaker 2:Hey, siri, it triggers, and then boom, boom, boom, boom yeah, and I mean, every time there is a motion there's a, if it's going to go through, it has to be seconded. So there's, there's these old classical um, so there's these old classical. You know, architect seconds, she seconds, they second whomever you have. This denoted, this demarcated conversational flow that takes place, and I can see that just anchoring this type of technology and being incredibly valuable. So that's really cool. It's intriguing to me as somebody who's sat through hundreds of hours of association meetings.
Speaker 1:And then, yeah, I mean we don't have to get too deep into the AI. We'll see as the technology evolves, because this is really a discussion about being on a board. And so first thing was that I wanted to mention about the transcripts and then people putting it one day a month, which what you said, and really, if it's not, it's kind of like it can be fun, I mean, depending on how many people join your board meeting, I'm sorry, your associations open meeting.
Speaker 1:If it's just gonna association's open meeting, if it's just going to be like really small percentage and it's business only probably I mean, there is a lot of business, but you can have people there it can be a little bit more. What do you think about that? It can be more of an event.
Speaker 2:Yeah, you can have fun things occur and you can, you can easily budget. You know, yeah, you can have fun things occur and you can easily budget. You know, like a pizza for the membership or something like that that shows up. I mean it's something that's easy to do. It's not at least for our associationcessions, for for the people that join, because I mean it's a volunteer position. You're asking people to spend time and invest time from their lives into this place and, yeah, I think that's a great way of just getting people involved, having it be something that's more fun and more exciting. And to that point, I mean, the reason I joined was because I felt that it was exciting to consider how much we could impact our environmental footprint. I thought that was really cool. I thought that being part of the Board meant I might have an opportunity to help reduce water usage, make our community more efficient, maybe improve the way we maybe reduce our energy footprint right, doing solar at some point, and for me that seems exciting, like that's. That's an exciting prospect for me. It adds value and it reduces our impact on the environment. Those are two things I'm really passionate about, right, like what better way to have an impact than say, hey, we've got 502 units here in the association. That's that's thousands of people that live here. And if we can all do something small or we can affect some small change like that, has a massive, scalable impact, right, and that's. That's an amazing way that one person or seven people, for example, a board, maybe with the help of a couple of little committees here and there landscape committee, gardening, finance committees these little pockets of people you know ultimately that make up less than maybe 5% of the association are really impacting 99% of what the association is doing at the end of the day.
Speaker 2:So the scale of one little motion here and the movement there of these little levers is massive, yes, and sometimes the importance of them can be just go over people's heads when it's just like I motion to know this is maybe a weird word, but it's like blasé, you know, you just kind of go for it, but it's not, it's important. I mean these motions that happen every meeting, yeah, they could get kind of monotonous, but they're really the engine that moves this operational system and ultimately that's what an association has to see itself as. It's a supply chain of different moving parts that are controlled by these levers that the board has in their hands and the supply chain that is an association is buying services from vendors and it's putting those services out into the community for its customers and ultimately it's a buying and it's an acting machine. So it's buying a lot of services and it's collecting the assessments from its membership. The membership is what tells the association and those board members whether or not they're doing a good job.
Speaker 2:But those vendors are also a critical part of this, this process as well, because one little motion here, one little movement there, sends out a lot of money to a party to, and then expect that party to get the job done. And that's something that I think that people don't realize is that the association is buying services as well as collecting assessments. So it's, if you want to talk about things that people are interested in well, it's buying stuff. We live in a capitalist economy where we buy things and then we collect money for those things that we buy and sell those things as a service. So really, this association is selling a service that is a community service. Right, it's kind of a funny term, but it is. It's really. It's a community service that it's selling to the membership and it's selling that service by buying different services from vendors.
Speaker 1:Wouldn't you say there's some products in there too, like if you have your common assets, like why I, you know, I don't want my sidewalks to be jagged, I don't want, as possibly, trip, I don't want the elderly ladies in my community to have to like maneuver through like these little increases in sidewalk and then, you know, trip, and then it becomes something where, yeah, just it just becomes a nightmare for that individual, for the association, for the neighborhood.
Speaker 1:Um, it's, there's it's services and there's products in there. You know, like you mentioned earlier, this pool I I don't even know if I've ever gone into my community's pool, but, with that said, if we're going to have a pool, it's definitely not going to be I'm green and it's not going to be with a bunch of stuff in there. And you know, you know, and nobody and luckily I live in a community where there's many people who would not stand for that, and I live in a community where there's many people who would not stand for that, and, as they shouldn't, if they're paying how much they are throughout, you know for their, for the services, that they're for these services, and you know we mentioned it earlier the customers, so association members are the customers of the association and then the association is purchasing service providers and there's a lot of cash going through the association from these association members to those service providers and there needs. People want transparency in those transaction flows.
Speaker 2:Yeah, they do, because ultimately, the associations our association, for example I mean, I've told you the numbers already. You can do the math, but I'll do it for all of our listeners there's 502 units at $370 a month. There's about $190,000 a month in assessments revenue and we have to put that revenue against these services and these products that we buy, such as a playground for the children or a pool for the people who want to swim, or concrete grinding as a service for all the membership who walk around the association, and we have to put these things in play and ultimately, the little bit that's left over has to go to reserves, because an association has to make sure that it's ready for unforeseen uh issues. Right, that the last thing anybody ever wants is a special assessment. That is a term that people might not necessarily be aware of, but it's a thing that can happen in an association and that's typically only when an association is run poorly, right? Yes, yeah, talk about that.
Speaker 1:Well, you just mentioned something, unforeseen issues their. You know, degradability of property is predictable and so reserve studies are critical. Chandelier Towers or, I believe, champaign Towers in Florida, champaign Towers in Florida, surfside, conco class uh, the first was done here before for the class, the, it was. It was predict. I mean, it wasn't predicted that that was going to happen, but it wasn't. I mean the, the integrity of that building was known to be faulty from from the reserve study beforehand, and instead, you know, very unfortunately, the improvements weren't made. And so, just to go to what you said and putting in the reserve study, um, these things are predictable and being aware of them is important so that you can avoid, as you're mentioning, the special assessment and, and as you said again, yeah, you alluded to, it's usually from poorly managed associations that are poorly managed buildings. Um, because, say, you don't have, say, your buildings managed poorly, you don't have an association, and then it turns out the structural integrity of the building is faulty. You're going to have to start something up real quick.
Speaker 2:Yeah, I think it's really important that you bring this up. I mean, I've got a lot of thoughts on this. I saw that you put out a piece recently about SB 326. Our association has gone through the process of making sure that we're getting all of our elevated structures signed off by structural engineers and certified for the state, because we had that, uh, that collapse up in berkeley a few years back. I think that was within the last decade, I think I think just, it was like 2015, I think, or 2016 that tragic incident.
Speaker 2:For the viewers who don't know um, it was in berkeley, I believe at uh, an association and um in. It was like a town home or something like that a, an elevated structure, basically like a patio or something like that, collapsed and some people died. And five stories high, five stories high. Oh wow, five stories, high, five stories high.
Speaker 1:Oh wow, thirteen people were on the patio, seven died, six or seven died, six or seven survived. Actually, one woman died within the last several months because of injuries sustained in that collapse, and I believe all of them were Irish. I believe all of them were Irish. I believe they were a group of Irish exchange students, which is a nightmare. What a nightmare to be abroad in what you think is the country with the highest you know you'd hope is some of the highest integrity structures in the world, and then you come here and that happens.
Speaker 2:That's a that's a tragedy exactly and ultimately, that's why we have rules and regulations in place. That's why community associations exist because you have to have some sort of format, some, some rules, some regulations to keep things aligned with just basic standards. And that's what a reserve study will do. That's what a community does with motions and laws and levers with a board. It's what the Davis-Sterling Act did. It gave power, but also responsibility, to these associations. So now it's something that you really have to steward right. The ship has to be captained by responsible parties, and I would just throw this out there to anybody who listens to this, listens to this anybody who's interested, who feels that they're a responsible and accountable person, can have a massive benefit in ROI in the longterm by putting their hat in the game and by joining an association. And ultimately that's what I did. I joined up and when that happened, there was kind of a big shift in the board membership.
Speaker 2:At the time there was a board that the community was a little bit unhappy about For whatever reason I'm not going to get into, but ultimately I was elected onto that board along with a few other board members, and we're a new board. We had to take the bull by the horns. There was some tumult and in that process I was elected president. I was honestly very surprised. I was the youngest person on the board, I was just starting my MBA, just starting a new job, and it seemed like other members of the board just were a bit hesitant to do anything. So one of them suggested that in that first meeting that I, that he recommended me as the president, and I just figured, okay, well, if they think I can do it, I don't know if I can, but I don't know if anybody here thinks they can. So, as well, I got to try and ultimately you find that there's a lot that goes into these associations. There's a lot that has to be taken care of, and I found that out in a very intense and hard way Because within the first three months our manager left.
Speaker 2:It was tough, we didn't have much of a notice. In fact we had no notice at all and from what our lawyers said, typically in this industry the standard is about a two-month transition process between management companies or management in general. So we went from an in-house manager to another self-managed yeah, so, self-managed community, to hiring out a community property manager, and in that time we had to react very fast. As a board, we really had to have a lot of meetings. They were often emergency meetings because we didn't have a framework, especially as a new board. So we had to have emergency meetings to discuss different vendors and ultimately, I think we turned it around. Within about a month we hired a new management company and in that month we had to hand process checks, you know, that were being dropped off by membership.
Speaker 1:Wow.
Speaker 2:That's not fun. We had to deal with hundreds of thousands of dollars just being handed to us through a little envelope at a door. You know it was very difficult and ultimately it showed us that we needed some, some. We needed a company to manage it, because we all have busy lives and, like I said, it should be enough for any manager or sorry, member to just sit in to their community one day a month. For board members it's a little bit more than that, but it shouldn't be an everyday task. That's why you've got to hire somebody to do this, to manage this business, because that's what it is. It's like an organization, right? You've got to process a lot of operational tasks to keep this thing running.
Speaker 1:Personally, I think it's best in almost all situations to have some sort of property manager when you have lower units, um, it might make less sense.
Speaker 1:There's more reason to maybe not have a property manager. But even if I was an owner of maybe you know, a four unit, eight unit, I don't necessarily just want to give my neighbor um on unrestricted, unfettered uh Oversay of the build of the property that I own. You know, at least you know in those, in those situations, you'd hope that more community members would be involved. But, um, yeah, that that might not be true. But to go what you said, it you know as a president, and you mentioned your MBA and meeting with people and transitioning from one management out to another. I mean, there's a lot of experience that you're gaining in this time.
Speaker 2:Yeah, talk about a trial by fire. I mean, I actually have to say that the timing was fortunate, because when we transitioned from the in-house management to a new manager, we had to have some level of change in accounting right, and so we had an old accounting method and we had to go to a new accounting method. This is a difficult process, and any association or company that can figure out how to iron this out is going to differentiate in a very major way and create a lot of value. Because that's the hardest part for an association is that transition process. From the accounting side. Everybody's got to sign up to have their automatic checks go through a new place or through a new bank or something like that, if they transition banks or accounting or at least that's my experience and then, on top of that, you've got to be able to audit the past year from an old accounting system that may be harder and harder to gain access to as you untethered from that system and are moving over to a new system.
Speaker 2:Issues in play um, that was something that, uh, that our association had to deal with firsthand, and you know, I can only say thank goodness that I had just taken our our accounting course at rady, because, uh, we had to go through an audit and there was um about50,000 difference in what we could see clearly in the initial paper trail, or it might have been more.
Speaker 2:Maybe it was close to $90,000. The number is escaping me, so don't hold me to it, but there was a large difference and ultimately it took time to drill in as a member of the board to find these numbers and hand them over to our auditor so that she could validate what we were saying was true. And learning how to dive into the numbers from that side of things was definitely educational. The numbers from that side of things was definitely educational. So I'd also say that to any of your listeners. If they're interested in learning more about a business and how to run a business, an HOA is a very good example of how a business runs, things that they have access to as a member of a community.
Speaker 1:Yes, that they have access to as a member of a community. Yes, and so it is a great piece of business experience. I mean, they're literally registered businesses within the state of California, so it's a great experience. And so, now that you've had that experience, what do you think about accountants and homeowner associations bringing on accountants?
Speaker 2:That's a good question. How do I feel about that? I felt like it's something that you really want to have a good relationship with your accountant, like it's something that you really want to have a good relationship with your accountant. There's a level of trust that the accountants have with you, right? Although it's a numbers game where, at the end of the day, it's black and white, it's this or it's that. It's black or it's red. You're either doing good or you're not's black or it's red. You know, you're either doing good or you're not.
Speaker 2:you're either accounting for the numbers or you're not right but it could be zero or double zero so you, you, you want to have that trust that you know that that person that you're talking to, about all these little numbers, understands the stories of how things happen, the larger, overarching stories, for example, like transitioning from one accounting back in accounting method to another. You want your accountants and your auditors to have trust with you so you can tell this story while they kind of believe you and understand you and they know your association and what's going on. And those those little bits right there do fill in the gaps that make it difficult to get things done. That, uh, you know, an accountant that you don't have that trust with might make it a lot harder. So, you know, having that relationship, having the ability to talk in a way where you understand what they're saying, it is very critical.
Speaker 1:Absolutely. And so what type of stories are you telling and why do? What's the reason that the accountant needs to know stories?
Speaker 2:Yeah, so accounting is the story of a business. On paper, it's the ultimate summary of a business. So when a business does things, those things get double um, double-entried into any kind of ledger right. That's the double-entry ledger system of accounting kind of ledger right. That's the double entry ledger system of accounting. And it tells the story of the vendors. It tells the story of the members, the customers. So it tells the story of how much money comes in, how much money goes out and who goes out. To the end of the day, assets equals liability plus equity right. So you're going to balance a book.
Speaker 1:Yeah, you're right, nevermind Balance a book.
Speaker 2:Yeah, so you need this book to be balanced right. So the way that an association works, the equity result comes in in the form of free cashflow that usually ends up in reserves, comes in in the form of free cash flow that usually ends up in reserves. So those reserves and the liabilities that you have against your association will equal the assets that your association has. And it goes back to the thing I mentioned at the very beginning.
Speaker 2:These assets that you're investing in accumulate value over time. So if you invest in them properly, but they also amortize, they degrade, and so, having this reserve that you spend money on from a resource, from a reserve study perspective, these resources, this reserve allocation, it's designed to be spent in a way which slightly outweighs the, the, the amortization of these assets, so that the maintenance and spend expenditure of these reserves kind of has a a larger funnel than this amortization costs and that's going to increase the value of the assets. That's what's going to rise, all the ships together, as a tide. Right, you want to make sure that the shareholder equity that is accumulated, this reserve and resource that you have, gets spent properly. Yes, makes sense, but that's kind of the way I see it there.
Speaker 1:And one thing that gets really difficult with hoas and I think it's really the big issue is this has to be done over decades. So it's because you know the reality is you're going to likely leave your board one day and um the the issues come in when you know, maybe someone who doesn't have the same skill set, same knowledge, maybe a group of people who don't have the same skill set some knowledge, maybe they don't have the best intentions, it you never know. You never know. And unfortunately, one thing is keeping that consistency over decades is really difficult, in particular with HOAs.
Speaker 2:I look at myself right now. Things could change tomorrow, but I'm living Carpe Diem, so I'm looking as far into the future as I can as a homeowner of my association right now, and my biggest fear in the long term is the notion that if this place is mismanaged, this association, this community that I really enjoy being a part of. It's very cute. It's got great trees and great landscaping and it's in the middle of UTC, where it's kind of densely populated with a lot of condos. We've got trees. It feels like we're in the outdoors. It's really this nice place. It feels like a little oasis of nature within a larger urban construct.
Speaker 2:My is that these, in the long run, some developer comes along and sees that the association hasn't been run well and sees an opportunity to leverage this weakness and organizational efficacy to buy up the land here and develop something like a large condo right that ruins the natural state that we have here.
Speaker 2:Is this little natural oasis in this larger urban construct. That's sad to me, that's my fear, and so to keep that from happening, you've got to make sure that the association doesn't have issues like a collapsing balcony. This is why you have to have an SV-326. This is why you have to have a reserve study and I said maybe unforeseen circumstances that could result in a special assessment. You did kind of push back on that and I liked it because you said you get these reserve studies that tell you what's going to happen. You can see the degradation as it's going to happen. But knowing that these things are there and executing on them are two different things and that's why you need an invested board, that's why you want people there and present at the meetings, that's why you want good people to show up and put the time in. People to show up and put the time in, because with without that, you can have something like what I fear, which is a developer come in.
Speaker 1:You could have something even worse, which is what happened in Florida. Yes, I mean, that's just uh, that's a tragedy, and you know our buildings are not. You know the infrastructure of the United States is aging, and so we all have to be prepared for that, and prepared for the fact that a lot of us are buying property that was built over 50 years ago, built over 50 years ago.
Speaker 2:If you're not, then that's great, but many people are, yeah, and I think that these older residences that have work to be done on them offer the biggest opportunity for new homeowners. They offer the best way to get in at a lower cost. Yes, which is critical. We all know the costs are going up. California is an expensive place. People want to live here. It's a great state to live in when you think about everything that's available to you as a citizen of this place, and that's why it's so expensive and that's why understanding what you're getting into is really critical for a new homeowner.
Speaker 2:How can you accumulate value we talk about? The price of homes is skyrocketing. Well, the best way in is a lower cost home that may need a little bit of work. It might be in a community that needs a little bit of work, might be in a community that needs a little bit of work. So how do you create value for yourself in the long term?
Speaker 2:You've got to get in at a place that has that opportunity to grow, but it has to be run well, it has to be done well, it has to be executed if you want to get value in the long run, if you want to be part of the homeowner's game, this professional game, you've got to understand how to run your ship properly and steer the ship properly, I should say, and when you first buy in you you just don't really think about it, it just doesn't, it's not something that registers. In fact, if you do think about it, you think negatively. But you know, I hope that people watching this understand that there's a lot of positive opportunities being a part of an hoa, being part of a board, being part of a community there's a lot and I think you know me personally and you might uh agree or not um, when you first move, it's tough to get too involved.
Speaker 1:You just moved, you have to. Maybe you know that's always a big deal. Um, you just paid a very likely a down payment and so then you know you're kind of seeing how your finances work after that. So it's tough to get involved right away and then you kind of you know, you don't know too many people. Some people are a little more shy, so it takes, I know, for me, I get much more open after a few months or a few weeks of seeing people, but after a while, yes, yes, it's, yeah. I mean, if you have the intention of actually making a difference in the community and can go in right away and just start, you know, getting involved, that's awesome.
Speaker 1:But, um, I think you nailed it on the head with saying you know california is an expensive place to live. It's not getting cheaper. You, you still want to live here. The land here is still worth something and the reason I love communities because you know, trying to purchase a home in California for is really, I mean, you're going to have to put yourself in, like, depending on the location, in like, depending on the location, if it's in like la, san diego, san francisco, you're you're going to be in like 12 000 plus dollar mortgages. Oh right, there, yeah, what say that it's a lot of leverage. It's a lot of leverage, and so communities you're going to get, you're going to be able to scale more effectively and you're going to be able to leverage these other people and you're going to be able to leverage the, the money that they have to go and purchase something, your share of this community where they have all these common assets. You have a share of this building.
Speaker 2:You have a share of the land on the building um, it's a shared responsibility, it's a shared value, it's a shared benefit and it's also shared responsibility. That's what humans do. We create societies that lift each other up, and an association is just kind of the first legal society level that we've created. You know, beyond just the individual right, it's the first legal demarcation between an individual and then the people that, like they live with. That's a community, that's an association. That's really the first level that we establish in the United States, especially in California. So being a part of that's a way to be of like, I want to say, optimism ultimately, because you really see that there's opportunities in being involved in something like this and it happens at every level of human society. But this one is very real and it's very known, it's very well documented's, it's litigated, it's, you know, it's a legal thing, and that's just that's valuable.
Speaker 1:There's something really valuable there when did you first make that realization? It's the first level of government.
Speaker 2:God, somebody must have said it. It might have been our lawyer. Honestly Shout out to Elizabeth French Green Brian in French. Yeah, I believe it was her that had said that the first time to me and when? When she said that, I my eyes were really open. It must have been after I had joined the board. It must have been a few months in. Maybe it might have been the first meeting. So that would have been in 2001,. About August or September 2021.
Speaker 2:Yeah, sorry, 2021. And yeah, it really hit me that this says that there's an awful lot of power and responsibility here in this association for its members to do the right thing, and the board.
Speaker 1:Yes, a lot of power, and so one, you know I think we're going to start wrapping up. But one question I have for you, alex, is what you know. When elections come around and someone's definitely not going to be running for the board, what should they look out for? And possibly, you know, I know sometimes you're just begging for people to get to go on the board, so it's not always so easy. But if there are multiple people looking to be a board member, what do you think uh, gen, you know, general non-board members should look out for?
Speaker 2:great question. Um, it's. I feel like it's going to vary so much from community to community. Just like in any interpersonal relationship, there's nuances. Just like with any family relationship, there's nuances. Family relationship there's nuances. And the community is just a slightly larger set of relationships, a slightly bigger network of relationships. There's going to be nuances.
Speaker 2:It's going to be hard to know what to look out for as a voting member unless that voting member is involved in board meetings, is involved in seeing what's going on. Because, regardless of somebody's accolades of their experience, it's really about what their intention is for the community. And just being an active part of the board, you can rely on other people's experience and sometimes, by understanding what you're good at and what you're not good at, you really don't have to have those layers of experience and you can be more effective as a board member by just knowing, having a vision of value. And that's what I would say to anybody who is interested in joining a board who doesn't have an MBA or doesn't have experience at the board in the past. As long as they understand how to, as long as they have a vision of bringing value to the community, they can be very impactful. Just you know, if you don't have that level of knowledge, you know your vote in for who joins the board could be more or less a little arbitrary. But if that's all you've got, look at the people's experience, look at their number of years serving the community.
Speaker 2:Take into consideration how your community is doing. Do you feel like your community is aging gracefully or is it aging in a very noticeable way? Because all of our communities age? But maintenance goes a long way. A good reserve study and good resource allocation prevents that aging from looking bad. And if your community is not aging in a good way and you've got the same board members running over and over and over for the past 20 years, maybe it's time to shake it up a little bit. But if you see that your community is doing well in terms of its aging, in terms of its ability to execute, consider that as well. No-transcript, to keep people paying what they're supposed to pay. You know these are little things you could look out for. Those are my tips, but yeah.
Speaker 1:Okay, great, and I think one thing you spoke about often and we might be able to wrap up on this is that the association's customers are the association members, the residents, the owners, the homeowners of within the association that pay monthly assessments. And is there anything you know about the customer experience regarding members that they should be aware of, or anything about the dynamics of the customer experience between members and the associations that we should be aware of, or anything about the dynamics of the customer experience between members and the associations that we should be aware of?
Speaker 2:Yeah, that is a great question, really. The way that I see that is that every community should look to have scaled their operations so much so that they can not only put away a portion of the assessments every month into their reserves but pay for their bills and then, furthermore, be able to have a little bit of discretionary funding that goes directly back into the community. That establishes a sense of community and that's where that customer experience can be enhanced. Right, that feeling of I'm part of something, I'm part of a community, even if I'm just a member. My dues are going to something that creates a community that I'm a part of.
Speaker 2:Like, maybe an Easter egg, haunted Easter. Maybe a Thanksgiving meal during Thanksgiving, maybe a summertime taco you know, taco feast something that can be done here and there. That shows the community like hey, you know, and reminds them hey, you're part of something bigger. Right, that that's a way of getting people involved. That's a way of reminding people that, yes, there's, there's an association that you pay money to, but that association is made up of your fellow community members. We're all part of it, we're all in one, we're all in it together. That's a way that you can enhance that customer experience. You can remind people what your dues are going to and maybe get a little bit more involvement and get good people to join up so that they too can help steer the ship with their visions of value.
Speaker 1:My guest today has been Alex Arthur. Thanks for coming on the podcast.
Speaker 2:Alex, my pleasure, karosh, good to see you. Good to see you.