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Reserves funding percent

Started by MarkR14 • 13 replies • 2973 views

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MarkR14 (Texas)
Posts: 39
Posted:
I thought I had read in a thread here that it is a rule of thumb to fund large upcoming expenditures in reserves at 78% of the estimated cost.

In other words you do your reserve study of needs and build your funding methodology at a target of 78% as a rule of thumb.

Can anybody verify?

Thanks for any help...
AlbertN (California)
Posts: 10
Posted:
To me, 78% represents a minimum threshold which might be indicative the association is in reasonable financial health (from the perspective of a very small association). One can never tell when a series of calamities is going to occur. Over the years, we have had several special assessments because the reserve account was not adequate -- and these assessments always seem to occur when the owners are "short."

Better to have adequate funds rather than have to defer maintenance or have special assessments. At least in our association, the owners have said -- we're glad not to have the special assessment (even though the monthlies are a bit higher.
KerryL1 (California)
Posts: 14,550
Posted:
I recall the 78% number too, but it was a poster's actual funding. From what I've read about reserves, you should shoot for 100% funding if possible.

We are only 55% funded because a previous board decimated our reserves for a huge pet, aesthetic project. When that was over, we only were 21% funded. The Boards since then have been able to gradually get closer to what we should be.

Lenders like to see a high % funded, but usually are OK with 60-70% and we've had no problems with buyers getting loans.

If I have time later, I'll check davis-stirling.com, Main Index, Reserves, where you'll see quite a menu. This cite is really good for Albert since he's in CA, but for generic topics, like reserves, it's good for folks from other states. too.
TimB4 (Tennessee)
Posts: 21,059
Posted:
You should have a 100% funding.

I do not recall a 78% figure. However, I'll do some searches later to see if I can find the thread.

KerryL1 (California)
Posts: 14,550
Posted:
Yes, Tim, I now recall who it was and that I replied 78% sounds pretty good.

Here's a citation from dsvis-stirling.com that might be helpful:

"Funding Levels. To determine how healthy an association's reserve are, divide the amount of money actually in reserves by the amount that should be in the account. For example, if on year 5 you have $25,000 instead of the $50,000 called for by your reserve study, you are only 50% funded. If reserves are in the 0-30% funding range, members can expect frequent and significant special assessments. Associations in the 70-130% funding range are considered financially strong, and special assessments should be rare. If the reserve account is over-funded, steps can be taken to bring it back into balance."
KerryL1 (California)
Posts: 14,550
Posted:
Sorry: davis-stirling.com
MarkR14 (Texas)
Posts: 39
Posted:
Quote:
Posted By TimB4 on 07/08/2014 11:28 AM
Here is a thread where you, Jim, talked about being 78% funded: Subject: reserve studies - how often...

It's the only one I was able to find.

Yes that's the thread I read that in...

I believe that was Kerry's reply that included the 78%.

As I am just getting up to speed on this issue I have more reading and will follow the references provided. As I now understand it, the only real guideline here is the one lenders set about percent funded.(70-130?)Yes?

Thanks all for the dialog on this...
MarkR14 (Texas)
Posts: 39
Posted:
Quote:
Posted By KerryL1 on 07/08/2014 12:25 PM
Yes, Tim, I now recall who it was and that I replied 78% sounds pretty good.

Here's a citation from dsvis-stirling.com that might be helpful:

"Funding Levels. To determine how healthy an association's reserve are, divide the amount of money actually in reserves by the amount that should be in the account. For example, if on year 5 you have $25,000 instead of the $50,000 called for by your reserve study, you are only 50% funded. If reserves are in the 0-30% funding range, members can expect frequent and significant special assessments. Associations in the 70-130% funding range are considered financially strong, and special assessments should be rare. If the reserve account is over-funded, steps can be taken to bring it back into balance."

Thanks Kerry, I went to davis-stirling and it appears I have some reading to do but thanks for the quote above and the reference.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Mark

I am not a liker nor advocate of D-S, I do agree with:

Associations in the 70-130% funding range are considered financially strong, and special assessments should be rare. If the reserve account is over-funded, steps can be taken to bring it back into balance."

KerryL1 (California)
Posts: 14,550
Posted:
Say, Mark, John does not like the Davis-Stirling legislation. But please note that the davis-stirling.com website is not the CA legislation per se. A particular CA HOA law firm gave their website that name. I don' t think John dislikes this website, which is loaded with useful info that help HOA folks in other states, tips about contracts, for instance.

Those from other states who visit it just need to make sure that the site's authors are not talking about specific CA statutes.
NpS (Pennsylvania)
Posts: 4,216
Posted:
Quote:
Posted By KerryL1 on 07/08/2014 12:25 PM

Here's a citation from dsvis-stirling.com that might be helpful:

"Funding Levels. To determine how healthy an association's reserve are, divide the amount of money actually in reserves by the amount that should be in the account. For example, if on year 5 you have $25,000 instead of the $50,000 called for by your reserve study, you are only 50% funded. If reserves are in the 0-30% funding range, members can expect frequent and significant special assessments. Associations in the 70-130% funding range are considered financially strong, and special assessments should be rare. If the reserve account is over-funded, steps can be taken to bring it back into balance."

I would caution anyone outside of CA against relying on this definition of percentage funding. There are other methods of calculating percentage funding used elsewhere. Relying on the D-S definition may lead to a misunderstanding if the method of calculating isn't specifically spelled out.
Sikubali jukumu. Read all posts at your own risk.
RichardP13 (California)
Posts: 1,767
Posted:
The real answer is trying to ensure that you have the money when you nee it.
MarkR14 (Texas)
Posts: 39
Posted:
Quote:
Posted By KerryL1 on 07/08/2014 6:12 PM
Say, Mark, John does not like the Davis-Stirling legislation. But please note that the davis-stirling.com website is not the CA legislation per se. A particular CA HOA law firm gave their website that name. I don' t think John dislikes this website, which is loaded with useful info that help HOA folks in other states, tips about contracts, for instance.

Those from other states who visit it just need to make sure that the site's authors are not talking about specific CA statutes.

Thanks Kerry for that clarification.

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