USE OF RESERVE FUNDS FOR IMPROVEMENTS VS. REPLACEMENTS

Started by StanB • 5 replies • 1944 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

⚡ Takes 30 seconds

Already a member? Log in

StanB (Arizona)
Posts: 2

Posted:

Our HOA did a Reserve Study in 2008 and set up a Reserve Fund. The Reserve Fund currently has $3.6 Million, which is about 40% of our next ten years’ needs for replacements for facilities and roads. However, our new Board is planning a $2 Million renovation to our main clubhouse, consisting of mostly improvements (relocating walls, new décor, patio enclosure, etc) as opposed to replacement of existing physical facilities. Only about $150,000 for replacements were itemized in the reserve specialist inventory and report (carpet replacement, furniture replacement, wood flooring replacement).

Can improvements (vs. replacements) be funded out of the above Reserve Funds? The existing Operating Fund surplus is less than $100,000 so the options are Special Assessment, loan, dues increases over a few years, or to tap the Reserve Fund.

TimB4 (Tennessee)
Posts: 21,059

Posted:

If you tap the reserve fund for a purpose other than what was intended, then the Reserve fund needs to be paid back either by special assessments or increased assessments.

StanB (Arizona)
Posts: 2

Posted:

Can a new Reserve Study simply add line items for non-existent future improvements? Then, a reserve specialist has no existing physical facility upon which to base useful life, cost, size, condition, future cost replacement, timing, etc. I would think engineering firms would balk at inclusion of a physical facility that does not exist.

Some HOA members advocate an Operating Capital Improvement Fund for refreshing the community, but not the restricted Reserve Fund. Others argue that mixing improvements and replacements is a co-mingling of Operating and Reserve Funds and is not allowed by IRS for purposes of excluding Reserve fund contributions from taxable income.

BrianB11 (California)
Posts: 6

Posted:

Quote:

Posted By StanB on 05/16/2012 1:44 PM
Our HOA did a Reserve Study in 2008 and set up a Reserve Fund. The Reserve Fund currently has $3.6 Million, which is about 40% of our next ten years’ needs for replacements for facilities and roads. However, our new Board is planning a $2 Million renovation to our main clubhouse, consisting of mostly improvements (relocating walls, new décor, patio enclosure, etc) as opposed to replacement of existing physical facilities. Only about $150,000 for replacements were itemized in the reserve specialist inventory and report (carpet replacement, furniture replacement, wood flooring replacement).

Can improvements (vs. replacements) be funded out of the above Reserve Funds? The existing Operating Fund surplus is less than $100,000 so the options are Special Assessment, loan, dues increases over a few years, or to tap the Reserve Fund.

Here is a pdf from Reservestudy.com that might shed some light on the subject for you.

📎 Attachments (1):

⏸ Downloads temporarily unavailable

📄1516194699871.pdf(104 KB)

BonnieG1 (Nebraska)
Posts: 1,186

Posted:

I want to keep this post as it is very interesting to me.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Brian,

Thanks for that website. It appears to have some good info on it.

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

✓ Ask follow-up questions
✓ Share your experience
✓ Get expert advice
✓ Access 350,000 discussions

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here