what is the recommended amount for reserve fund

Every Association is different and there is no one set amount. The first step would probably be to have a reserve study done. Use the search box at the top and enter Reserves or Reserve Study to see the multitude of posts on the subject.

Thanks .. I would have to think it would be greater than ours: less than $1000 for about one hundred $200K houses

Reserve fund.
Don't know about Illinois but I believe all reserve funds would have to be whatever the CC&R's say. If no provision and I don't see how there could be one that would be equitable, the money stays in Reserve Fund. First, most places shift that reserve fund around to meet requirements, meaning it is just a different pool of money that can be used by the Board. I believe Reserve funds should never be touched except in time of emergency. Lots of owners don't even want a reserve fund, and again to me, a reserve fund serves the real property, which has authority over owners likes and dislikes. If the association were to be dissolved and the real property turned into cash, then all monies will be totaled, minus the bills and distributed by to the owners at the apportioned value of each unit.

too many unknowns in one equation.

reserve funds are like a tailored suit, they must fit the situation.

I recommend you hire a firm that specializes in conducting reserve studies. They'll ask the right questions (some may not be easy for you answer) and then deliver a recommendation.

Roger B and all,
Always a but. Example: Our condos have 65 units plus a community room that the Declarant owned and had deed to. When he needed some cash and we knew it we offered to buy the Community Unit, approx, 1600 sq. ft. of living space.
We purchased the property and legally made it common property. Funds for 85K was taken from reserve fund. Now that cash was used by the owners and a vote was taken to spend it. Wouldn't it be true that this money is an exception to your rule?

Robert, since your community now collectively 'owns' a Community Room/Unit after voting on it for 'common property' & paying $85,000 for it, you now add that to the other items your docs specifically state your HMO/Condo Assn. is required to maintain. Did you also have to include an official change to the covenant docs to include this as a common expense item?

Roger, in quoting "It does result in no longer needing annual reserves being allocated for replacement of the Community unit. The 85K could be applied to reduce the annual assessment and/or a one time refund split proportionately to the current owners."

Since as I understand it, the community group purchased the unit for common use, could you explain how this would not now become a common expense item for upkeep/maintenance and cost included with assessment? Thanks.

The lockbox is probably for the use of the fire dept. in case of an emergency.

When you say 'management has decreed', do you mean your property management company? If so then it may be time to look for a new PM. At a minimum they need to be reminded that they work for you, not the other way around.

Hi Steve:

I don't think that anybody really answered your question. The concept of a reserve fund is that each homeowner pays for the use they are getting out of the HOA-maintained elements. Here's a rough idea of how much should be in your reserve fund:

Take each common element/area/responsibility and divide the "used" life by the total life; multiply by the cost of replacement.

Here's an example:

On a condo building you have paint that will last 6 years; you are in year 4, so you have two years of life expectancy. Your should have 4/6 of the replacement cost in the reserve fund for this item. Therefore, if it's going to cost $9000 to repaint, you should have $6000 in reserves and be putting $1500 in each year.

Now...suppose that repainting were your only replacement item. Same scenario, but you've only got $1000 in reserves. How much do YOU need to fund?

Now, you take the remaining needed money and divide by the remaining life. So...the remaining needed money is $9000 (cost of replacement) - $1000 (what you have in reserves) = $8000. Divide that by the remaining life (2 years);
$8000/2 years = $4000 per year.

There are other factors that go into this, such as inflation, interest on savings, tax rate of the HOA for the interest on the savings, reduction or extension of useful life due to environmental and other factors - all reasons why your HOA should pay for a professional reserve study.

Example of environmental factors: suppose you are in year 15 with a cedar roof in Oregon (where I live) and the roof has never been maintained. You'll have broken shingles, probably a fair amount of moss and algae buildup, and possibly a lot of needles & leaves from trees. Your roof might need replacement immediately, depending on both environmental factors as well as the quality of the cedar roofing that the builder installed.

Compare that to a cedar roof where you've had maintenance every 5 years, with regular cleaning each year (blow off debris) and that roof might last 30-40 years. You would be putting money into reserves for maintenance every 5 years, plus adjusting the useful life based on an engineering analysis over time.

That's why HOA's hire competent reserve specialists, and pay for an on-site update every three to five years, as well as off-site updates every year, because things change - particularly if you're looking at repaving (due to jump in the price of oil), as well as inflation, interest rates (savings have gone from 1/2% to 5-6% in the last year or so) and all this affects how much you need to be putting in.

Depending on the HOA's maintenance responsiblities, how old your development is, etc., your HOA may be well funded or way underfunded.

You might want to print this and take it to your board to help them understand the need for a professional reserve study.

J. Patrick Moore, CMCA

one more question.. how do you find someone that is qualified to do the study?

The reserves should be planned out in the years of usgae; what I mean by that is if your HOA has a pool within x amount of years the pool would need to be resufaced x amount of dollars is placed in that line item.

Reserves should have a 5 year, 10 year and 25 year plan. The reserves of any HOA is based on the amenities in that community.

In a townhome association or condo's the roof would be considered common element therefore the HOA would have to plan for a complete roof project in x amount of years. An example of what that would look like the following:

Estimated Lifespan Next
Replacement in Year
Area Cost Years Due 2006 2007 2008 2009 2010
POOL
Pool Plaster $20,000 10 2006 $3,333 $3,333 $3,333 $2,000
Waterline Tile $4,500 10 2006 $1,000 $450 $450 $45
Pumps $2,400 5 2007 $480 $480 $480 $480 $480
Filters $10,000 15 2012 - - $2,000 $2,000 $2,000
Change Filter Sand $1,500 5 2007 $300 $300 $300
Lifeguard Stand $700 8 2013 $88 $88 $88 $88
Pool Cover $6,000 10 2012 $600 $600 $600 $600

Paint Pool House $3,000 5 2008 $600 $600 $600
Replace Pool House Roof $5,000 20 2017 $417 $417 $417

Of course this example the colums have been pushed over because of formatting so the first colum should be the cost and so on.

SteveS4: Network with other like-community associations in your area and learn what engineering firm they used.

I think Gloria gives an excellent synopsis of the Reserve fund.
To accomplish this is becoming more and more difficult if our condo is any indicator of what may be happening and will only get worse.
We paid for a Commercial firm to do a complete organizational and structural review. (All this simply stated) Finally the Board got their act together and put out the Reserve study at an annual meeting. Dispite my prodding for years we were at this timee way underfunded. At the meeting this was all discussed and a motion was made not to add to the reserve fund but to use what little there was for some replacement of balconies. 3/4 of the balconies had been done last year. Right or wrong the president put it up for vote and the vote was in favor of using reserve funds, even though it was explained to the owners the danger of this. Why was the vote this way and so overwhelming? I believe it to be in a significant part, because of the 90% of the people that rent their units. All figures just a qualifed guess. A lot of folks that brought second home in the last ten years did it with no idea of holding on to the place, make a profit and get out. Now, things have a different picture and this plan doesn't look like such a sure deal. True all over the country. Now, if you are only waiting to bail out, why worry about reserve funds? Should this have been a membership vote? Maybe, but I believe at the very least it should have been tabled. When you agree with the majority vote, sometimes it is like making a law that from now on, it will be done this way

DaneC - Great links, appreciate your posting them. : )

We had a Reserve Study 11 years ago. The format is what Gloria suggests. We are repairing or replacing a lot of the common elements this year. Our Reserves are not enough on some of the property and to much on others.

This year when the budget is done we have an accurate figure to work on so we are adjusting the budget for these Reserves.

Our reserve funds have specific names, such as, pool, guardhouse, painting of homes,etc.
Last year we added a Catastrophe Fund. When we set up this fund, homeowners were told it is for the deductible on our hurricane insurance which is $93,0000. How can we be assured that this money will only be used for this by another Board? The wording is only Catastrophe fund. The name is to general. What is a catasrophe to one person may not be to another.

Nancy, Don't give much thought to what other boards will do. They will do the same as your Board. You can't stop them from using funds, that's what they are supposed to do.

Past Board members and especially Presidents think they did a wonderful job, some do some don't but they tend to think they do. Me, I know I screwed up some things, but the place is better than it was when I got here, best you can ask for and I am not taking the credit, just stating a fact.