Some observations from the HOA budgeting process

Doing the annual budget in our HOA is always difficult. I wish more owners would attend the budget session but they don't. This year, fewer than 1% attended. We spent about 2 hours discussing the budget for 2016. But only three people in this HOA know that [other than board members, who are also owners.].

The board members take differing positions. I look at it as a balancing act. Balance projected and identified costs for 2016 with anticipated income via fees. Look at reserves very closely for the next 10 years. Take into consideration the possible financial well being and other costs for our 336 owners. Then mix this stew together and Voila' we can arrive at a possible outcome.

Other board members take very different views. Some operate from fear, others don't want to cater to the lowest common denominator. Others sit quietly and play "follow the leader." Frankly, I'm not satisfied with that.

I'm a very pragmatic guy. I know what it costs this HOA for each foreclosure and I do think we have an obligation to the shareholders. It is a balancing act.

For anyone who is interested, I've read reports that most probably anyone living on social security income will get the same amount in a check next year as they did last year. This is also true for many workers. No salary or wage increases for many in 2016. I do take the well being of our shareholders into account when looking into budgets and fees. [Posted at the Social Security Website October 15: "No Cost-of-Living Adjustment for 2016"  by  Jim Borland, Assistant Deputy Commissioner, Communications, SSA  - "The CPI has not risen since the last cost-of-living adjustment in 2015. As a result, your SSI benefit rate and, for most people, your Social Security benefit amount will stay the same in 2016."]

Unfortunately, HOA costs do increase from year to year. This shows up in contracts as well as utility bills. For owners, the problem might be more direct. In recent years health care has become an ever increasing burden and there is no indication that Medicare payments by retirees will be the same in 2016 as they were in 2015. Obamacare had become for many an insurance nightmare.

All I can say is, I'm aware of the bigger picture and I do take that into consideration when planning any finances for 2016.

HOA Elections

It's that time of the year when HOA elections at BLMH occur. Our HOA has 336 owners. But we have some difficulty filling seven board positions. However, we recently had a full board of seven.

In a few days we'll have our annual meeting and owners will elect several board positions. Our president, after several years has decided this is to be his last term on the board. We have several incumbents who I understand are running for another term.

Will other owners be sufficiently motivated and concerned to step up to fill a board position? I certainly hope so. I've been asked me opinion of the lack of owner involvement and I has consistently stated that it is the issue of greatest concern to me at this Home Owners Association. Governance is an important component of a HOA. It it is lacking, then it really isn't a "Home Owners" association is it?

When asked why they don't participate many owners will say they are "too busy." Some see the board as an authoritarian body whose primary task is the unpleasant one of enforcing rules. Rules such as paying one's fees. In the past a few have taken the position that paying monthly fees should be strictly voluntary and so too for any other rules that are not convenient. Everyone seems to agree that the HOA should be maintained, but there is some disagreement about who should pay what. A few years ago, it seemed a board took the position "pay if you can." That was unworkable of course because money is necessary to pay everyone from the City of Wheaton water department, to our snow plowing service to the landscaper.

There are differences of opinion about what constitutes the proper maintaining of the property.  As a fiduciary, it is a board member's duty to uphold the bylaws and the rules, and maintain the property within reason and impartially.

Impartiality is one of the tripping points for owners. Everyone agrees we should be treated fairly and equally. In other words no special favors, everyone is to uphold the rules and pay their fees. However, these are generalities. When the rules apply to each of us is when they become unpopular.

This confusion about board duties and responsibilities led to some serious disagreements a few years ago and two board turnovers. This confusion lingers even today. Some would prefer that the HOA take on the maintenance of their units. Beginning with fire places, and as long as we are at it, why not the furnace, air conditioner and hot water heater, too?

These are "manor style homes." Forty-four of them on a property of about 40 acres with 15 acres of turf, hundreds of trees, three streams and waterfalls, perhaps a half-mile of walks and so on. Operating and maintaining the common element aspects requires ALL of the fees. There is no money remaining to assume the responsibilities of individual owners.

However, some owners want to live in a home like environment with private walking paths, etc. but would prefer the costs of an apartment. Some see the bank balance for the HOA and are of the opinion this is a lot of money. Yes, it is. However, this HOA has taken ten years and nearly $2 million dollars for a roofing project. That's about $200,000 per year and it took far longer than ten years to accumulate this. The project is not yet complete and may require another 2 or 3 years.

Street and water mains are another infrastructure area which has required large sums of money. Taking care of about 100 dead and dying trees has also been expensive.

The street project will continue with work on cul-de-sacs for another few years.

All of these projects and other day to day maintenance will take every dollar that our owners contribute to the HOA via their fees. Most do this without complaint or incident.

Not all are happy. But then, making people happy is not one of the duties and responsibilities of a HOA board. Will the coming election be a popularity contest? We'll see. This election will be important, as are all elections at BLMH. I've been in a race against time since 2007. There remains much to do to build an organization.

Planned or Programmed Maintenance versus Emergency Maintenance

I advocate a combination of Programmed Maintenance and Delayed Maintenance. Deciding where and when to apply these approaches may be impossible for a board. There will always be emergencies for boards, management and maintenance to deal with. It should be preferred to replace emergencies with anticipatory action.  In other words, I prefer more programmed maintenance and less delayed maintenance.

Some might call this "proactive" behavior, but that word has been overused and requires a definition here. Proactive behavior by individuals refers to anticipatory, change-oriented and self-initiated behavior as a response to situations. Proactive behavior requires acting in advance of a future situation, rather than reacting after that situation has occurred. It means taking control and making things happen rather than adjusting to a situation or waiting for something to happen. Proactive individuals and groups do not need to be asked to act, nor may they require detailed instructions.

I could have also entitled this post "Look Before You Leap" versus "He Who Hesitates is Lost". These two idioms summarize the problem faced by boards. Owners may choose the idiom of choice to criticize any board action, or boards may paraphrase these to justify action taken or not taken. Of course, both can't be correct, or can they?  How long can maintenance be delayed while serious problems are avoided? Are we gambling? Do we feel lucky? I suppose we could ask Dirty Harry:

Delayed Maintenance

Previous boards have stated an overwhelming preference for delaying some maintenance as long as possible in the interests of saving money and growing reserves.   It seems there is a preference to be a reaction to events. Are there advantages to this approach? Here are a few pros and cons.

Pros of Delayed Maintenance:

1. Delaying will defer the spending of money. 
2. Delaying may create lower current fee levels, as financial requirements are passed to future owners at the time maintenance occurs.
3. Deferred spending will create larger than expected bank balances. This may be only a facade of better finances and might be deceptive. 
4. Allows the board to pick and choose projects, etc. 
5. Allows the board to micro-manage most aspects of maintenance and capital spending. Provides boards with more power and decision making opportunity. Some boards or board members may prefer this. 
6. Allows the board to select winners and losers in the association. Some boards or board members may prefer this.
7. The planning workload of the board may be reduced. Frequent and regular surveys and inspections of infrastructure is replaced by owner complaints, observations of management and maintenance workers.
8. "Out of sight, out of mind" might become the method of choice. 

Cons of Delayed Maintenance:

1. Delaying maintenance defers the day that money will be spent. Bank balances may temporarily grow, but so too will maintenance obligations for the association. Spending is only delayed; it cannot be eliminated while simultaneously maintain the association.
2. Delaying will create a backlog of issues to be resolved at some time in the future. These are passed to future boards. This may create a minefield for future boards. 
3. Delaying may create large future fee requirements if current fees are held too low by deferring maintenance and reserve funding. 
4. Delaying requires better financial, project management and cost accounting controls.
5. Delaying may create more breakdowns and stress boards and create upset owners.  
6. Delaying may create more emergency situations because the operative approach is "Don't fix it if it isn't broken." In other words, wait until it breaks and then allocate the resources. 
7. A higher skill level on the part of boards is required to avoid delaying too long or beyond the point of no return. Who really knows what that point is? 
8. Delaying too long will overwhelm the board, management and workers with a myriad of priority tasks. 
9. Delaying may overwhelm contractors and maintenance workers with emergency situations. 
10. Delaying may create unusual spending requirements. 

The Programmed Alternative

The association has since 2010 had a reserve study and/or an update. The studies provide extensive lists of overall infrastructure conditions, recommended projects and timetables to deal with infrastructure decay, and a funding program. The reserve studies are a tool to facilitate proactivity by the board and planned maintenance activities. 

The approach advocated by the reserve study and by the experts is a programmed approach to capital projects in which funds are collected via fees, saved and then spent in a timed, programmed method so as to maintain the infrastructure of the association. 

Pros of Programmed Maintenance and Projects:

1. Replaces complaint based management with planned maintenance. 
2. Requires frequent and thorough infrastructure condition surveys. This creates a more informed board and redirects board activities from reactive to proactive. 
3. Creates a more fair system in which owner complaints are no longer the major driving force and planned management becomes the driving force. 
4. Reduces breakdowns and emergencies as "Don't fix it if it isn't broken" is replaced by "lifecycle planning."
5. Smooths finances and provides alternatives to the board most years. "Emergency" is replaced by "planned priorities."
6. Does not create future traps and minefields to ensnare future boards. 

Cons of Programmed Maintenance and Projects:

1. May accelerate projects resulting in the spending of money a year or more earlier than absolutely necessary.
2. Requires frequent, thorough and accurate surveys of all aspects of infrastructure. 
3. Creating those condition reports requires a much higher involvement by boards and management. 

A Realistic Approach

I advocate a combination of Programmed Maintenance and Delayed Maintenance. There will always be emergencies for boards, management and maintenance to deal with. It should be preferred to replace emergencies with anticipatory action.

I am of the opinion that the only way to prudently apply a delayed approach is to do annual surveys and create condition reports. At BLMH this did not happen for a variety of reasons. To do this requires "feet on the street" and annual report updates. It requires frequent board discussions. It requires people on the board who are willing to do this. It can be a lot of work.

It also requires boards which are willing to appropriately spend the money that is being collected as reserves. Should we only replace entry doors after they fail, or streets after they become minefields, or garage floors after they become gravel or roofs after they leak? I think not. 

Is Your Association the Titanic?

The object in the title was a ship, a transportation vehicle that ran afoul of some serious difficulties. When we use the name "Titanic" as I am using it in this post, we usually think of that voyage which was to be an extraordinary, pleasurable trip. But it encountered grave difficulties and has become the stuff of legend and also the object of several films, both romantic and documentary.

Using the term "Titanic" to describe one's condominium association is a metaphor that brings up an image worth thinking about. Is your association on a collision course with disaster?

Most of us will say "Of course not." Others may say "We're doomed!"  Yes, there are a lot of "horror stories" out there since 2008.  Not all are representative of reality. It's useful to remember that in 2012, about 85% of all the "homes" in the U.S. were not underwater. That includes townhomes and condominiums. If you think most of us are "underwater" then you can blame the politicians and the news media for misleading you with statistics that were not representative of the entire home market. The overwhelming majority are not underwater, and weren't in 2008, either! How can that be? A lot of people own their homes outright (32% in November 2012). A lot of people have paid off a substantial portion of their mortgages. A lot of people purchased homes with 20% or more down. Many apparently bought a home for that old fashioned reason "to have somewhere to live" and as an alternative to renting; they were not overextended in real estate.

Financial conditions have improved. Apparently, many of us have been paying down our mortgages for the last 5 years. However, individuals and associations face a lot of challenges in 2013 and beyond.

If you compare a home or condominium to a transportation vehicle and consider it to be a place to spend a significant part of our lives, then I suggest you also consider that travelling on a commercial airliner with professional crew is safer than flying on a small, private plane. In other words, there are advantages to condominium living with professional managers, a board to monitor and direct maintenance and finances, and a community to share the financial burden and the financial risks.

The naysayers will point to the Titanic, and to the headlines and say "But commercial crashes do occur on airplanes and on trains." Yes they do. These are the exceptions to the rule. It is a fact that in 2003 there were 22 people who died in commercial airline accidents in America. It is also true that in that same year 44,757 died in motor vehicle accidents, excluding motorcycles. (Note 1). In an average year, 82 die in commercial airline accidents. The number of automobile fatalities is pretty constant at about 40,000 per year. My point? Commercial travel is safer, Titanic or not. So operating our life out of specific events might not be the wisest way to go. Today, some people say that owning real estate such as a home or condominium is a big mistake. Really?

Residence or condominium, we also sometimes think of our "home" as somewhere to rest our hat during our journey of life and escape from the outside world with a nice warm hearth in the winter and other comforts. It is somewhere in which the problems of the larger world, the financial issues of our country and countrymen and women may seem far, far away. In other words, if we are attempting to find a means to achieve solace and comfort, including financial security, then there may be value in owning an abode. However, a private residence might not be the wonderful place that some have promoted it to be. Nor is it the automatic disaster that others now say it is. The fact is, we all have to live somewhere and a condominium can offer real financial advantages over renting. That includes an advantage called "strength in numbers."

However, real estate never was a sure thing, and with that signature you could be buying a ticket on the Titanic. That's what those who are deeply "underwater" in their mortgages may think. This applies to both single residences and town homes or condominiums. So if you are a home owner, you also might want to read this post and see if the concerns it raises should also be applied to you.

Rugged Individualists? 
Ah yes, this is supposedly a nation of free thinkers, of rugged individualists with a "can do" mentality.

That's a wonderful, romanticized version of America. What does that mean? Does the ability to sing like a canary guarantee a slot on "American's Got Talent" and a financially successful life? Well, that's not quite what I was thinking about.  I was raised by my parents to be self sufficient. My kindergarten teacher once told us "You are Americans" and she went on to point out that the word "American" ends in four letters "I CAN." In other words, it was in our national identity! The pioneers came to this country and saw a magnificent bounty. That manifested itself as near limitless opportunity. They lived that opportunity. We've all read the stories.

Where are we today? Has the opportunity evaporated? I think we forget about the reality of some of those romantic tales. The reality is life in this United States has been difficult from time to time, and there have never been guarantees. It was difficult before we were a nation. The Jamestown Colony perished. The Donner Party perished. People lived difficult lives, died on the prairie of starvation, in childbirth, in Indian wars, or in the influenza epidemic of 1918. If we compare the "Great Depression" to the "Great Recession" current times look like a cake walk. Furthermore, there have been not one, but four recessions since 1980!

Why do I say these things here? Because I think it's important to understand that we are probably living a life grounded in fiction. Contrary to some beliefs, we do need community. We need infrastructure. We need deep pockets. We need so much we take for granted, and yet many of us pretend we can do it on our own!

"A man's home is his castle" is the old expression. That may be, but it may also be a "money pit." Our personal reality probably lies somewhere between those extremes, but from time to time it may seem that we have moved closer to one or the other. If things go bad, would you rather be alone, or have professionals to support you and neighbors to share in the burden? Would you prefer to be a loner, or have the support of a larger group including professionals in your immediate community?

Unreasonable Expectations
Everyone who purchased a condominium did so with some expectations of what community living would be like. They also came with expectations of costs. Every association is unique, and so too are the expectations and built-in costs.

Here at BLMH, we have 15 acres of turf, hundreds of trees, two lakes, three ponds with meandering streams and waterfalls, and a mile or so of walking paths. Yet, we're not an arboretum, or a park, or a retirement community. Other associations may have a pool or pools, a sand volleyball court, cabana and a clubhouse. Yet, they aren't a "Club Med."

Owners may not understand this. Offsite owners may have little interest in maintaining some of these amenities, as their personal agenda might be simply extracting as much cash as possible from their personal business, which is renting their unit.

Condominium associations are communities. Ours is actually larger than some villages. Yet, we aren't a social club. Primarily, condominium associations are businesses in which each owner is a shareholder. Ours is a not-for-profit corporation. The primary duty of the board of directors is maintaining the property and operating the association as fiduciaries while upholding the declarations, the bylaws and the Rules & Regulations. That puts the board in the crosshairs of owners from time to time. It is not a popularity contest, and funds are spent to maintain the entire property. Not simply to maintain or improve the view of a group of owners, or on personal whims. Further, in a large association such as ours, it's impossible to do everything "at once." We paint the exteriors and halls on a 6-year cycle, for example. Large capital projects are also done in phases. We have 84 driveways which we are replacing. We're replacing 44 large roofs. Stream repairs which include large patio areas are also being done on a rotation basis. Yet, some owners will say "Why are you doing that patio over there, with my money!"

Some owners do not understand the purpose of the association in which they belong and some will promote a personal agenda and a political position. For example, we are not primarily a retirement community. Yes, they persist and in so doing, they are probably doing a disservice, and contributing to the tensions that will always be present in a diverse group.  They certainly make the job of the volunteer board more difficult.

It is a fact that most associations have "adequate" finances. That's true here at BLMH. We don't have excess funds for personal initiatives and any "new" initiatives will require reallocation of funds,  reducing spending in other areas, or increasing fees or levying a special assessment. It's untrue to say "We have enough money" to do whatever, unless it's already in the budget, in the maintenance and reserve studies, and also in the current fee structure.

Yet, owners from time to time will pretend they aren't aware of this, or make a fuss to get their way, or undermine the board. Owners will sometimes fall behind in their fees, and may feel that "There is enough money in the association" and so, being late or a month or two behind should be acceptable and tolerated.

If an association doesn't properly manage these expectations, it should expect difficulties.

The Current Reality?
Here are a few statistics to think about. I chose these because they are general in nature and are commonly quoted statistics and headlines. I suggest that the reader avoid drawing any specific conclusion from these and I'll explain why later in this post.

"Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes, according to a report to be released Tuesday by the Employee Benefit Research Institute." This from a March 19th article in the Wall Street Journal.

"There have been approximately 3.9 million completed foreclosures in the U.S. since the economic crash squarely began in September 2008." This from CoreLogic’s National Foreclosure Report for October 2012.

Let's look at one more statistic.

The total number of foodstamp recipients as of November, 2012 was 47.7 million.  At that time the total number of U.S. households on foodstamps hit an all time record of 23,017,768! (Here's an aside statistic; the cost to the taxpayer to keep these 23 million households fed was $281.21 per month per household.)

What's My Point?
My point in the previous statistics is this. First, there are some real problems in society and the U.S. economy. These problems permeate all aspects and every segment of our society. However, generalities don't do justice to individual condominiums or personal plans. Yes, there is a lot of populist fiction out there and politicians who exploit it. We do get conflicting information. Which is it, are we a nation of underwater homeowners living in foreclosure with foodstamps, or are we the stuff of the pioneers?

I suggest that in each of us, there is both possibilities, and that we're a bit of both. That is also true for each household and each condominium association. For example, the statistic on savings provides a dismal picture. It implies that 57% of those workers approaching retirement have a bare minimum of savings, and that's untrue. A recent Employee Benefit Research Institute survey was the source of that statistic. That survey also stated that 51% of us are either "very confident" or "somewhat confident" that we will have enough money in retirement.

How can that be? Well, there are a lot of workers out there and most are in the age group 18 to 70. If we are younger we usually have fewer savings because of school debt, the costs of raising a family and we might be putting up to 41% of our income into a home. However, as the children age and the home is paid off, many of us divert that cash to retirement funds and savings. Yes, specifics vary all over the map. And so too for condominiums and homes.

Yet, if we read the headlines which focus on misfortune we may conclude that most of us are underwater and in foreclosure, that we subsist on food stamps and have no retirement savings. That is certainly true for some of us and for those who are that situation, we may have gotten there by accident, misfortune or bad luck.

This is not a personal finance post and so it will focus on condominiums and other forms of residential property ownership. Yes, as with individuals, an association may find it doesn't have the funds available to maintain the property and deal with necessary repairs and other normal costs. I suggest that poor planning and an inability to act in accordance with plans also contributed to the "hard times" some are experiencing.

Your Association is Somewhere between "bulletproof" and the "Titanic"
Just as it is with the individual households in this economy, condominium associations lie somewhere between well run and a disaster.

On the Titanic, we had a ship which was piloted in possibly treacherous seas. (Are there any seas that aren't possibly treacherous?) There were a number of mistakes made:

• It was considered to be "unsinkable." In other words, the plan couldn't fail.
• It had design flaws. In other word, there were incompletions. One was a rudder too small for a ship that size, and the absence of "bow thrusters."
• It didn't have a contingency plan. After all, who needs one in an "unsinkable ship"!
• It was running at a speed at night which meant it could not avoid an iceberg if one were visually spotted directly ahead. Oops, is that a symptom of poor judgement?
• It didn't have sufficient life saving contingencies, such as lifeboats.
• Passengers weren't briefed on life saving and other issues, and told "In the event this ship sinks, you may have to swim for it." In other words, inadequate communications. 

What does the above mean in general terms for your association? Here are a few questions to ask:

• Does your association have a 30 year, long term plan? One that can identify "icebergs" ahead?
• Does your association have supplemental 1-year, 5-year and 10-year plans?
• Are these plans updated every year, so that current conditions are taken into account?
• Does your association have professionals who take an objective look at the plan and its conclusions?
• Does it also use reserve professionals to provide an independent, unbiased review?
• Does your association use an accountant and are your finances independently audited?
• Does you board include a treasurer who scrutinizes every bill and signs every check?
• Does it view the plan as "unsinkable" or does it consider it to be only a possibility and "adequate?" In other words, is your board cautious or arrogant?
• Is your association outspending its finances? Are you pretending "icebergs" don't exist?
• Do you have a contingency plan to deal with any flaws in the plan?
• Does your association honestly communicate the issues to the owners?
• Have you, as an owner, attended numerous association meetings so you are aware and understand the issues facing your association?
• Have you studied in detail the documents that govern your association?

The Black Swan
This is a term which is taken from the title of the book "The Black Swan: The Impact of the Highly Improbable" by Nassim Nicholas Taleb. That book has become quite popular because it delves into the occurrence of improbable and unlikely events, both positive and negative, which result in massive consequences.

It has been used as a crutch to explain everything from the recession of 2007, the stock market panic that followed in 2008, and even the rash of home foreclosures since then. In fact, it has even been used as an excuse for these failures.  What rubbish!. I am of the opinion that if the book had existed back in 1912, it would have been used by some to explain the sinking of the Titanic.

Here's a fact. While hitting an iceberg is improbable, running at high speed in a ship which can't turn quickly in the dead of night in seas with icebergs and no radar is a risky venture. It would have been darn near impossible to hit that iceberg if the speed of the ship had been a correlate to its turning radius and the visible distance, with a margin of safety.

The real question to ask about Black Swans is this "What is a Black Swan?"  It is an event that is highly improbable. Most such events are avoidable. When people take the perspective that "it was unavoidable" or "it could never happen" and then, after it does, describe that so called impossible event "A Black Swan" I suggest that they be questioned in depth. Most of the time we will discover that they didn't plan and mistakes were made. The larger question is "What steps need to be taken to avoid this."

Everyone, from homeowners to condominium owners, should be able to have a responsible conversation about this.  I suggest many can't and many won't, preferring to quote some politician or other and saying "It can't happen because "so and so" said it can't."

A Personal Perspective
Most of us know what we have to do. We can read the papers and the internet and the various financial data provided by many accountable sources. But we may not take the necessary actions.

You want proof? Then answer these simple financial questions, and these are every day, household budget type questions

• Do you have a realistic household budget?
• Do you have a 5-month "emergency fund?"
• Do you have a savings plan? 
• Do you have a retirement plan? 
• Do you fully fund a Roth-IRA each year?
• If you have children and expect them to go to college, do you have a funded "529?"
• And, the biggest question of all is this. If you have such plans do you live your life in accordance with them? 
• I'll take it up a notch and ask "Are you debt free?" 

If you can answer "yes" to all of these, then "kudos" to you. If you have no idea or answer "no" to all of them, then you should be living with your parents. If you are somewhere in between you have some work to do, but that's okay because for most of us we do have time to put good plans into place and achieve them. If you don't understand the questions, then you probably lack the financial skills required to strike out on your own and succeed, or to live the life of a "rugged individualist."

If we have difficulty with a household budget, don't plan to accumulate the savings for a new furnace or roof, then we'd better have someone around to do the "heavy lifting" for us. I know, we will argue and complain, but in the end I assert it's better to be in a responsible community than to be a single, do-it-alone individual in current day America when it comes to housing. Unless, of course, we really are one of those "rugged individualists." However, I'm talking about accomplishments, not our personal thoughts or ideas on the subject.

Many  people think "I can go it alone, I'm capable and I'll make it work." There is a reality that indicates that a lot of us can't and many of us won't do the planning or the work or whatever it is that is necessary to succeed. That's one of the reasons that many businesses fail in the first year, and nearly 65% within the first four years. Thinking "I can do it" is no substitute for actually doing the things it takes to accomplish one's goals.

In the next post on this topic, which I'll call "Somewhere Between Bulletproof and a Disaster" I'll compare some lifestyle possibilities, and I'll also give everyone something to think about.

Final Thoughts
One of my philosophies about living is "Generalities are wonderful pipe-dreams, but specifics are reality." As applied to one's abode, there is a point of view that owning one's home gives one ultimate dominion and control. That's arguable. If you live in Wheaton, IL as I do, there are specific codes and ordinances to be upheld and adhered to. I can't let my abode fall into the state of being a dump. If I do, I can expect the local inspector to knock on my door.

That's the problem facing individual homeowners. Yes, we can make certain decisions, but then we discover that we are responsible to a "higher power" and we are solely responsible for making all of those financial decisions and performing the necessary maintenance. Those financial decisions include designing a life that allows saving to deal with the consequences of home ownership.

Oops! That means that when the driveway develops a hole, the roof leaks, or the exterior needs repairs or landscaping, that "Sally Homemaker" gets to pay the bills and/or do the work. Of course, "Joe Homemaker" has been planning and saving for this for the last 5, 10 or more years, hasn't he?

The fact is, we can live our lives to a certain extent as we wish. However, if we want to be a "home owner" there are specific obligations, and not a lot of help in satisfying those obligations, beyond our family unit. Perhaps "Mom and Dad" can help out, but more than likely they have their own issues.

In 2008 a lot of people discovered they were serfs. That was the year it became apparent that they lived in that home, paid the taxes, mandatory insurance and did the necessary maintenance. But in fact, as they had no "equity" they were in fact, serfs. With that realization and "no skin in the game" a lot of people decided to walk away and toss the keys at their lender. Today, there are ads on various radio stations and the gist is "Honey, we're okay financially, but that decisions we made to buy this home is really killing us. We're underwater and it will take years to pay off enough of this debt to get to where we expected to be. We made a mistake and we need a way to get rid of this financial responsibility." The solution in the ad? "Call XYZABC-Lawers and we'll get you out of that mortgage, so you can live a happy, carefree life!"

As so many have realized, with ownership comes financial and other responsibilities. That being the case, would you rather go it alone, or with other owners to share the risk, and with professional management?  Do you want to avoid being on a financial Titanic?

Continued in Part II "Somewhere Between Bulletproof and the Titanic"

Note 1. Statistics from Time Magazine article on risk dated December 4, 2006.

(C) 2013