Help with Reserve Fund for a new HOA

Started by MargoT • 3 replies • 1598 views

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MargoT (Georgia)
Posts: 80

Posted:

Hello:
We had a retired member volunteer to present a Reserve Fund Study with the members voted for a $15 increase in dues to be allocated to the Reserve Fund.

I would appreciate your help since this is my FIRST Reserve Fund Study and for a new HOA and members.

We had $600 capital from five closings in 2013 which is already allocated to the Reserve Fund. There should already be a separate savings account with a balance of $600.

Our dues are now $900: $60 Reserve plus $15 allocated to the Reserve Fund.

On the 2014 Operating Budget – Cash Basis, the Treasurer showed $650 per month allocated to the Reserve Fund. This totaled $7,800 for one year. He is taking funds from our dues that weren’t allocated and some yard maintenance for the Common Areas was eliminated and we can’t accept that.

The owners requested a meeting and the Board will hold sometime in February.

The members expected to see $15 per member x 12 mos. x 26 members = $4,680 / 12 mos. = $390 per month allocated to the Reserve Fund.

Don’t you separate the funds received as $60 for Revenues and $15 for Reserve Fund and deposit into two separate accounts for each month?

Is a separate Budget kept for Operating and Reserves, or do you comingle?

Do you show the amount allocated for the Reserve Fund as an expense each month for the Reserve Fund each month as the Treasurer?

I could be wrong about this; I thought you deposited the funds for the Reserve Fund in the savings account. When maintenance was necessary and scheduled from the Reserve Fund Study, you transfer the money from the savings account to the Operating Budget as an expense?

I thought a Reserve Fund Study was good for five years and that you don't pay to have a Reserve Fund Study done each year.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By MargoT on 01/22/2014 12:09 PM

Don’t you separate the funds received as $60 for Revenues and $15 for Reserve Fund and deposit into two separate accounts for each month?

Margo,

We have two accounts. One for operating funds (checking acct) and one for Reserves (savings account). However, we don't set aside a specific amount to be placed into the Reserves on a monthly basis. We treat the Reserves as an expense to the operating fund (and on the budget) and as long as we meet the amount by the end of the year, we are happy.

This allows us to keep funds available at the beginning of the year for things like snow removal and yet still meet our Reserve obligation.

Quote:

Posted By MargoT on 01/22/2014 12:09 PM

Is a separate Budget kept for Operating and Reserves, or do you comingle?

We show everything on one budget. All expenses are paid from the operating fund. Items that are to be paid with Reserves have reserve funds transferred to the operating fund.

I've attached an example, which should help explain it.

Quote:

Posted By MargoT on 01/22/2014 12:09 PM

Do you show the amount allocated for the Reserve Fund as an expense each month for the Reserve Fund each month as the Treasurer?

We do our budget on a yearly basis. Our Income and expense report shows how much is spent or transferred to the Reserves on a monthly basis. However, as posted earlier, we have no set amount to be set aside each month, only a set amount that needs to be set aside for the year.

Quote:

Posted By MargoT on 01/22/2014 12:09 PM

I could be wrong about this; I thought you deposited the funds for the Reserve Fund in the savings account.

This is what we do. However, accounting wise, it doesn't matter where the funds are physically kept (checking, savings, cd's, etc.) providing they are accounted for. State laws may or may not address the commingling of operating funds and Reserve funds.

Quote:

Posted By MargoT on 01/22/2014 12:09 PM

When maintenance was necessary and scheduled from the Reserve Fund Study, you transfer the money from the savings account to the Operating Budget as an expense?

We transfer the funds from the Reserves into the Operating funds and count it as a deposit. We then pay the Reserve item as an expense from the operating fund.

However, depending on the Association, you could have two budgets and two accounts and pay reserve items from the Reserve account and operating expenses from the operating account.

It's entirely up to the Association. The only thing they need to be sure of is that they adhere to standard accounting principals and comply with applicable laws and the governing documents.

Quote:

Posted By MargoT on 01/22/2014 12:09 PM

I thought a Reserve Fund Study was good for five years and that you don't pay to have a Reserve Fund Study done each year.

Most Associations will do a full Reserve study every 5 years. However, it should be reviewed and adjusted as needed on an annual basis.

Hope this helps,

Tim

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KellyM3 (North Carolina)
Posts: 2,239

Posted:

Quote:

Posted By MargoT on 01/22/2014 12:09 PM
Hello:
We had a retired member volunteer to present a Reserve Fund Study with the members voted for a $15 increase in dues to be allocated to the Reserve Fund.

I would appreciate your help since this is my FIRST Reserve Fund Study and for a new HOA and members.

We had $600 capital from five closings in 2013 which is already allocated to the Reserve Fund. There should already be a separate savings account with a balance of $600.

Our dues are now $900: $60 Reserve plus $15 allocated to the Reserve Fund.

On the 2014 Operating Budget – Cash Basis, the Treasurer showed $650 per month allocated to the Reserve Fund. This totaled $7,800 for one year. He is taking funds from our dues that weren’t allocated and some yard maintenance for the Common Areas was eliminated and we can’t accept that.

The owners requested a meeting and the Board will hold sometime in February.

The members expected to see $15 per member x 12 mos. x 26 members = $4,680 / 12 mos. = $390 per month allocated to the Reserve Fund.

Don’t you separate the funds received as $60 for Revenues and $15 for Reserve Fund and deposit into two separate accounts for each month?

Is a separate Budget kept for Operating and Reserves, or do you comingle?

Do you show the amount allocated for the Reserve Fund as an expense each month for the Reserve Fund each month as the Treasurer?

I could be wrong about this; I thought you deposited the funds for the Reserve Fund in the savings account. When maintenance was necessary and scheduled from the Reserve Fund Study, you transfer the money from the savings account to the Operating Budget as an expense?

I thought a Reserve Fund Study was good for five years and that you don't pay to have a Reserve Fund Study done each year.

Margo,

My HOA keeps two separate accounts - Operating & Reserve Account (It's easy for ordinary people to understand)

A separate budget isn't kept, but my HOA lists "Reserve Fund Deposit" as a monthly expense. We pay it like we pay a bill. (If a month gets financially "tight," pay your real vendor contracts and don't bounce checks). If your residents want to see their new dues increase reflected in a tangible bank deposit, please give it to them. It's their money.

I would definitely show, in my budget, when the HOA moves money out of Reserves for a major project. You are correct in my estimation.

Reserve Funds are probably only technically "good" in the month they're written but serve as a great general roadmap for keeping your property up-to-date and on a long term financial gameplan.

Your perceptions are really good about Reserve Funds.

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