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We have a yearly assessment (collected over ten months) to ensure that for IRS purposes the income is truly segmented from ordinary (maintenance income). Our assessment (forty-five year old building that needs more capital improvements each year) garners about $900,000 each year.
Our expenses, given a building of our size, are always substantial, e.g.; $500,000 for roof replacement next year, $1,000,000 for our elevator overhaul and upgrade a few years ago, $400,000 a year for window replacement as we are changing 15% to 20% or our windows per year.
We have a multi-million dollar line of credit.
We use the line of credit only in anticipation of the assessment income and then pay down the line of credit each year. Thus, by definition, the line of credit is not for long term borrowing.
Elsewhere herein these forum postings, I and other have discussed capital improvements, capital reserves, assessments, etc. Suggest a search as there may be ideas that your facility can adopt.
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And, we have eliminated our original mortgage of $7,000,000 incurred at the time of conversion without ever refinancing the principal or taking on a second mortgage. In the same period of time we have expended $15,000,000 for capital improvements.
The current $900,000 in assessments is because we did not lower charges when we retired the mortgage. We moved the mortgage amount (about $450,000) from maintenance income to assessment (for IRS tracking purposes) and maintained our original assessment amount of $450,000. The combination of the two streams (now one assessment) produces $900,000 a year.
Net net. the shareholders are paying the same amount as they did when the mortgage existed, save the yearly maintenance increases that we all face.
Our long term capital improvement plan, as required by the AICPA, shows that over the next fifteen or so years we have another $15,000,000 to expend.
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