How much should a 9-unit complex have in reserves?

Started by AvanD1 • 7 replies • 3217 views

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AvanD1 (California)
Posts: 22

Posted:

Generally speaking, how much should a 9-unit complex have in reserves?
The complex was built in the late 1980s and is located in Brentwood (West Los Angeles).

If an owner is selling a condo in a building that has low reserves, would it be reasonable for a buyer to ask for credit?

FrankM7 (Pennsylvania)
Posts: 61

Posted:

Depending on your CC&Rs and applicable maintenance/repairs therein, your reserve account should adequately cover costs without the need for special assessments.

And, I believe in most states it is required that a condo association needs to provide financials to prospective buyers including its reserve account.

SheliaH (Indiana)
Posts: 6,964

Posted:

It depends on what your association covers, how old are the components, when were they last replaced, etc. What your group really needs is a reserve study to answer these questions. If you look up reserve study on this website, a number of people have provided tips on doing it yourself, but you might also want to consult a reserve study expert to give you some additional tips so you don't miss anything.

I'm not sure what your second question means. If the condo has low reserves, the potential buyer should know that if he or she buys the unit and something happens to a commen element down the line that the association can't afford to pay for, the homeowners will have to come up with the money (loan or special assessment). I don't think a buyer asking the seller for credit has nothing to do with this issue - usually, this works the other way around (does the buyer have the resouces to pay for all the costs of owning the condo - they WILL go up as time goes by).

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

RichardP13 (California)
Posts: 1,767

Posted:

As that I know Brentwood, you are in the high rent district. Typically, with just 9 units, your reserves are going to cover some of the smaller items. Roofs, balconies and painting will normally have to be done by special assessment for each major project/replacement. Fully funded reserve could be around $300K.

TimB4 (Tennessee)
Posts: 21,061

Posted:

Avan,

There is no set amount or rule of thumb based on type or size of development. It all will depend on your Reserve Study.

Here is a link to a thread within HOAtalk that discusses Reserve Studies:

http://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/103517/view/topic/Default.aspx

Links within that thread will help your Association perform their own study or the Association may contract with a company to do one for them.

Hope this helps,

Tim

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

To put it in simple terms.... lets say you have a roof and its estimated to last 5 more years. A new roof will cost $15,000. Divide $15,000 divided by 9 units divided by 5 years divided by 12 months would be $28 per homeowner to ensure you had enough money to afford the roof. Now take every item you think you would need and the date you think you would need it and you have a "reserve study".

Got it?

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

$28 per homeowner

That is $28 per homeowner, per month.

FrankM7 (Pennsylvania)
Posts: 61

Posted:

If you plot the expenditures to be paid from your reserve account, as our software does, based on estimated repair/replacement costs calculated on the number of years until it's needed and the number of years thus far saved for each item, you can come up with a fairly straightforward report to help you formulate the dollars needed to be paid by your members. It may not be as comprehensive and wordy as a paid-for reserve study, but it may be sufficient for a prospective buyer along with your association's net worth and budget reports.

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