Financial issues mentioned in the Power Point Presentation

The rant below is in regards to the roofing project our community was going through. In a nutshell, our gated community, under the management of our board of directors, decided that to do the needed roofing of the townhomes would require all of us to shell out $13,000 as an assessment. This is obvious pure insanity, and the community as a whole formed a coalition to present our "case". During all this the board presented a slide show that tried to justify this cost. So, here's my view:

Power Point Presentation issues:

Slide 22 states:

"Calculations show that projected material cost increases due to oil volatility and escalated decaying structural framing components and the cost of labor will nearly double the cost of the project exponentially over a projected 15 year period vs. completing the project within 5 years."

OK... I'll bite... show me the calculations!

Where the heck are they getting this "projected material cost increases due to oil volatility" crap? I would think at most you'd have to assume a 10% increase per year for materials. However, the majority of the cost of doing a roof is the labor, NOT the materials. In fact, I've heard that the roof covering materials are only about 10% of the cost. So, if 10% of the total roofing cost increases by 10%, what's the impact on the cost, assuming all else stays the same? It calculates out to be 1%!!! Don't believe me? Do the math:

- Assume a re-roof of a quad is going to be $100,000

- Ten percent of this cost is materials, or $10,000

- Increase this by 10%, and you get $11,000, for an increase of $1,000

- Now figure the percentage of this $1,000 increase to the total cost of the job which was $100,000, or 1,000/100,000, and you get 1%

So needless to say, any cost increase in materials is negligible to the total cost of the project.

This leaves us with labor cost increase.

For this, check out:

http://www.buildingteamforecast.com/article/CA6486846.html?industryid=43720

and also:

http://www.reedconstructiondata.com/news/2008/04/from-a-cost-perspective-now-is-a-good-time-to-build/

According to this site, it says:

"On a year-over-year basis, construction labor charges have risen +3.6% according to the installation component of RSMeans’ Construction Cost Index (CCI) and by +4.1% according to RSMeans’ measure of average hourly labor rates for skilled workers. The year-over-year change in the materials component of the CCI was +5.3% in July."

At 5% increase per year, the $100,000 job will cost $127,628 in 5 years, and $147.745 in 8 years. So, waiting 8 years as opposed to 5 years will add about $20,000 to the cost of the job, or 16%.

On the Reed Construction Data site it states:

"Annual labor cost increases appear to be ranging between +3.5% and +4.1%, depending on the measure."

It also states:

"Material Cost Increase Negligible in Latest Quarter"

This data is based on 2008 numbers.

So much for the scare tactic of the material and labor increases doubling the cost of this project!

On another note... why are they comparing the cost of the project over a 15 year period to doing it in 5 years? Why not compare the 5 year plan's cost to the 8 year plan's cost? They got bids for both the 5 and 8 year plans (see slide 6), and yet they want to compare the 5 year to the 15 year.

For the sake of argument and to enable us to view actual numbers, let's assume the cost of roofing a quad today is $100,000. Let's also assume an increase in total cost to be at a rate of 4% per year. This is certainly within the realm of possibilities based on the above data, and is in fact being generous.

OK, this means in 5 years the cost of the roof will grow to $127,628, with 8 years putting it at $147,746. That's an added $20,118 for waiting an extra 3 years. That's an increase of just under 16%.

So they're asking us all to shell out close to $13,000 in order to crunch this 15 year plan down to 5 years, and not consider the 8 year plan as this might be 16% more costly?

I think at this point if we are to rush the project along, let's AT LEAST back it off to an 8 year plan.

Also, do you realize that we will be paying AWT, the inspectors of this project, $1 million over the next 5 years? This equates to over $9,433 per quad, or $2,358 per unit, FOR JUST INSPECTION!!!

So do you think AWT has any sort of vested interest in our roofing project? Is it no wonder that they want us to hurry along and get this thing done within 5 years? THIS ONE PROJECT WILL BRING THEM $1 MILLION, assuming that they don't raise their fees over the next 5 years, at which case it will be even more!

I say we get bids for inspectors!!! This is not rocket science. I'm sure AWT is a fine company, and have done an outstanding job in creating the reserve study and have some very useful information. However, why pay the experts to walk around and inspect the construction? You wouldn't think of paying a ton of money to have the head engineer who designed your car to work on it when it needs repair as you know there are plenty of highly qualified people out there who can work on it for a lot less money. So let's get less expensive, well qualified inspectors!

Slide 6 says that bids will be asked for both 5 and 8 year plans. What would be the cost savings going with an 8 year plan compared to the 5 year one? If we throw out the assumption of 10% increase per year of dry rot due to NO data to back it up, and figure that an extra 3 years is not really going to significantly effect the cost of the project, then let's look at the 8 yeat plan.

I also don't understand why ALL of the remaining quads, which total 106 at this point in time, can't be ventilated prior to the roofing being done. Doing so would have three benefits:

1) If there is indeed an excess of moisture in the area under the roof coverings, then adding ventilation will help curb whatever increase in dry rot may be occuring

2) Doing the work now will be cheaper than doing it later when the cost of labor may be higher

3) Doing it now will mean it won't be needed to be done by the roofer later, thus the cost of the roofing will be cheaper. Also one less thing to inspect, hence another savings.

So, let's shave $1 million off the project by getting rid of the overly expensive inspectors.

Then let's move this out to an 8 year project instead of a 5 year one. Also let’s add the needed ventilation now, and curb any potential increase in dry rot. While we're at it, let's adhere to the CC&R, which states that the roof structure is the home owner's responsibility.

And what if instead of jumping on this roofing project right now, we wait a year! Why? Well, let's say for the sake of argument that we have $10 million sitting in reserve, ready to be spent on the project. Let's also say it can earn 5% interest. That comes to $500,000 in interest earned! Dang, that'll pay for a few quads!

Of course, I don't know how taxes work on all this, but you get the point.

And if we wait a year, maybe we can use that time to get the remaining quads properly ventilated, and also inspected for possible major damage so as to better assess the condition of the units prior to re-roofing. Seeing some potential major damage will better prepare the home owner to the upcoming expense.

It seems to me we're all being scared into a need to jump on these roofs right now, and not wait one extra minute. But this advice is coming from a company that stands to earn $1 million over the next 5 years... should it proceed. Conflict of interest? Uh, ya think?

And while we're running scared by the advice of a company that stands to gain a lot of money, we're to go against the CC&R and shell out $13,000. Why are we being so quick to make a decision in this moment of panic?

It's already caused us to crunch a 15 year plan down to 5, caused us to defy the CC&R, basically creating an illegal resolution, and on top of that we are to gamble $13,000 of our money!!!

I'd say, if anything, instead of forging ahead, WE NEED TO PUT THE BRAKES ON AND STOP!!!

The sky is falling, the sky is falling... AHHHHH!!!!

But it's not falling!

OK, there have been some REALLY bad quads out there, but so what? Do they really represent the norm?

Don't forget too that we live in California, where there is typically little to no rain for many months once Spring hits, and we have low humidity. Remember, dry rot will not grow and expand if the humidity is under 22%. Don't believe me?

Take another look at the data presented here.

So let's wait one year, and make it through one more rainy season.

Why make a long term, expensive plan in face of running scared, instead of moving on this in a more efficient, methodical way that is not hinged on the advice of the group that is going to make $1 million?

Dry Rot and Financial issues

My thoughts about the power point presentation that explained the necessary upcoming assessment.

First of all, how do they KNOW that the dry rot in roof framing will escalate 10% per year (see slide 21 of the PPT file)?

Where are they pulling this number from? They've stated numerous times that they cannot guarantee what has caused the roof structure damage, even though several experts have looked into it. So they're saying that nobody can say what caused the damage, yet they can say with certainty that it will grow at the rate of 10% per year?

Plus, they DO know what caused the damage, or at least all the contributing factors. I think it's more a case of not knowing which causes were the most significant. They know there was improper ventilation which led to condensation and thus dampness that then leads to mold and dry rot. They also know that the HardiShake roofing material proved to be inadequate, and caused leaks and other damaging factors.

But to come out and say that the rate of decay will be 10% per year seems ludicrous!

A document put out by the Building Research Establishment that details dry rot states:

"Growth: Whilst timber needs to be wet for growth to be initiated, at moisture contents of around 22% existing mycelial growth ceases and the fungus will eventually die; decay just above 22% is likely to be very minimal."

So, why can't we repair the ventilation on ALL quads right now, and thus slow down or perhaps even stop the dry rot growth?

This same document goes on to say:

"Growth rates of up to 4 metres per annum have been recorded; in other cases the organism may only have spread a few millimeters in the same period of time. However, Building Research Establishment give a figure of about 0.8 meters per year as a general purpose maximum growth rate (BRE Digest 299) and Coggins (1980) gives a general figure of about 1 meter per annum. Because there are large variations in growth rates, the age of an outbreak cannot be positively determined. The problem is further complicated since it is not always possible to tell if an outbreak is the result of a single outbreak or the coalescing of numerous outbreaks."

OK, so we're talking anywhere from 13 feet per year to less than an inch per year! It then goes on to say that the Building Research Establishment gives a general purpose maximum growth rate of just under 3 feet per year. Bottom is this... one cannot say with any certainty how fast dry rot will progress!

Then they state that the projected material and labor cost will nearly double over a project 15 year period versus completing it in 5 years. Again, where are they pulling these numbers from? The roofing material is actually a small percentage of the total cost of doing a roof, being only about 10%. So what if the cost of materials increase? The total impact on doing a roof goes up minimally. As for the cost of labor going up, I would argue that if anything, the labor is probably cheaper now than it was a year or so ago. And notice they are NOT saying that this will all increase just a small amount, but are saying it will DOUBLE!

So the board is operating on two assumptions, both of which seem to have very little merit. And yet they are using these two factors to justify a project that will cost each us $13,000!!!

Accelerating the roofing plan will put us into a $7.1 million hole, and based on the fact that one CANNOT put much significance on the two issues they are throwing at us, namely the dry rot growth rate and the doubling of the cost in 15 years, then why do it?

The other factor driving this cost through the roof (sorry, couldn't resist that one), is that the HOA is taking over the cost of repairing the roof structure, WHICH IS AGAINST THE CC&R! Are there REALLY people out there with over $13,000 repairs needed on their one unit? I've seen pretty ghastly pictures of some of the roofs, but not being a contractor I can't say that they were to the tune of $13,000. However, the CC&R is clear in that each home owner is responsible for THIER roof structure, NOT EVERY ONE ELSES!!!

So, what would happen if we did this:

- Stick to the original 15 year roofing plan. The dry rot growth rate and doubling of costs is crap and cannot be depended on to provide a solid answer.

- If there really is a huge concern that inadequate ventilation is going to lead to accelerated dry rot, then can't additional ventilation be provided somehow NOW on all the quads?

- Have each home owner pay for their own structural damage as stated in the CC&R.

Home Owners Association getting better

Well, turns out the HOA was VERY cooperative when a friend and I went into their office to view documents. They even offered to make copies of them so we wouldn't have to take notes by hand. The manager even sat down with me for over an hour to discuss some of the material in great detail, enabling me to better understand what's going on.

Hopefully they will keep up the good work, and a willingness to share information.

Now if we can just agree on a roofing solution that isn't going to break the back, we'll be all set.

Home Owners Association

Ah yes, the much needed HOA, but at time very misunderstood... I think sometimes within the HOA itself!

I'm currently in a community that is battling with our HOA, stemming from the very high assessment they want to impose upon us due to the roofing project. But this is just the tip of the iceberg. I suppose at time assessments are inevitable, BUT this one began a couple years ago when the board decided to go against the CC&R and take it upon themselves to repair all damage under the roof coverings. They defend themselves on this by reinterpreting the phrase "roof coverings". Funny though that the same resolution goes on to state that once the roofing project is done, they are no longer responsible for the any structures whats so ever.

So the battle begins.

I won't go into the whole history that has gotten us here, but will instead focus on the current state of affairs, of which there are some very annoying side things going on.

One side item is the fact that the board continues to be stuck up on allowing the community to come to their office and copy the records and documents that we want to see. The board holds strong to the fact that we can make an appointment and view the materials, and take all the notes we want, but they cannot be copied unless they first OK it.

This is ludicrous!

State law says that any such records can be viewed and copied... period!

Then there's the expenditure of money by the HOA, even though they tell us that they're trying to watch expenses. For instance, they contract out to a person the task of mailing and tracking the ballots once the voting time arrives for the special assessment, to the tune of $3,400!!! This was also done by volunteers in the past, but they say that since there is now distrust in the community towards the board that this is necessary.

Then the HOA attorney composes and mails out to all the members of the community an 8 page letter describing the HOA's position in all this. Now how many thousands of dollars do you think this cost? There's no reason why the general manager couldn't have written up something and sent it out. Isn't that what we're paying her for?

Also there's the matter of the HOA office charging all of us in the community the cost of copying some of the documents that the newly formed roofing committee have asked for. Again, don't they have an entire office full of board members, not to mention paid staff who's job it is to do these things? Aren't we already paying people for such work? Now we have to pay them AGAIN?

I believe that the HOA has gotten out of the control. Not really sure though if it's really the board's fault as I think the general manager has everyone wrapped around her little finger, including the lawyer who is present at almost all the meetings, even though he is not needed. Just what salary is he raking in just to sit there? But hey, who can blame him? If I was making the dough he's making and then was asked to attend meetings where I can just sit there and not really do anything, but bring in the high hourly pay, I'd be crazy NOT to do it.

Should be interesting to see how this all plays out.