Community Reserve

For contingencies (i.e. a contingency fund), I've heard that 1/12 of the annual assessments is a fair ball park.

Note: A typical contingency fund would be for unexpected minor repairs and to make up shortfalls between assessment payments and paying the bills.

We actually have two contingency funds. One for Reserves and one for the Operating fund.

Some Associations will include insurance deductibles in their contingency fund figures.

For expected common element maintenance, repairs and replacement, you need an actual Reserve Study to determine the amount needed in a Reserve Fund (which would be in addition to the contingency fund).

See this thread: Subject: Reserve Studies/Funds 101 for more information about Reserve Studies and Funds.

Dennis,

If your community has not been putting funds away as a reserve over the last 25 years you are in serious trouble. There is no way that only 15 units will be able to afford to fund an adequate reserve starting now for all of the common elements you mentioned (which are probably nearing the end of their useful lives). If this is the case then the cost of a reserve study is the least of your worries.

If there is already a reserve fund the amount being contributed to it should have been based on something (like a reserve study). If such a study exists it should not be very expensive (less than $1000) to have it updated.

Hi Dennis,

In a ballpark sense, your list/calculation is for replacing or wholesale renovating your amenities. Regular maintenance isn't part of this.

1. Make a list of all the property amenities for which your HOA is responsible and which you would replace if it wore out, aged out or completely broke down. (Pool & Deck are good starts)

2. Try to assess the cost it would be to replace each of these listed amenities. (rebuild the dock, re-plaster the pool, change out pool motor equipment)

3. Try to assess how much expected lifespan is left in these amenities. (My pool needs replastering, by history, every 8 years. My deck could last 15 years if new)

4. Settle on a general inflation rate. 3% is a good one given long term trends.

5. Confirm the amount of cash in your Reserve Fund.

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For example, If your pool has 4 years of life left on an 8-year plaster life cycle(as a moderate expectation), then learn the cost of re-plastering it in 2013. Calculate a 3% increase on that pool cost for 2014, 2015, 2016, 2017. That would be a good ballpark figure of cash you'll need in reserves to pay for the pool job when it's expected in 2017.

If the pool costs $50,000 to re-plaster in 2017 and you have $10,000 in Reserves, then you can chart on your ballpark reserve fund the need to save $10,000 annually for 2014-2017....or 2013-2016 since you will spend that money in 2017. The next year after you renovate the pool, you'll save 1/8th (8 year lifespan) to cost of replastering the pool 8 years down the road.

Repeat for all your other amenities, which will need replacing in different years based on your honest calculation. You will surprise yourself at how much expense is hidden in your amenities but you can do it yourself w/ some confidence. However, when determining lifespan of an amenity, err on the side of a shorter lifespan before you replace it. It will force your HOA to save more money, more quickly - if the amenity breaks down a little early, you're covered.

To those of you who replied to my request, my hardy appreciation. Good advice all. I'll be doing some additional research and, should I require more your your good advice, I'll be back at you. By the way, Virginia, we have had a reserve fund in place for several years to cover replacement or extensive repair to the common elements, however, Sandy (last year's mega storm) and some additional recent unanticipated repairs have largely left us zero balance in the reserve and, given our location and an increasingly unpredictable climate, the community is debating on how best to proceed. Thanks again all. Dennis