DIY reserve study

see:

Subject: Reserve Studies/Funds 101 a thread on this forum (click link).

In that thread, I discuss how we did our initial internal reserve study. There are also links to forms, articles and webinars about Reserve studies. Unlike your example of a template you pay for, the references and forms in that link provide free information.

Since you said you are in an 8 unit HOA, I would expect that you are in a condominium. A condominium Association has to maintain building structure. Therefore, unless you have an engineering firm to perform an inspection or are very knowledgeable in that area, I would recommend a professional study be completed. Otherwise, basing a study (as we did when we did ours) on historical data from Association records and discussion with salesman (company representatives), you may easily miss calculate the remaining lifespan of a structural element.

Hope this helps,

Tim

The questioner needs to check applicable state law to see if such stipulates a professional RFS preparer.

EVERY ONE of our jurisdiction's 9,000 condo corps - whether 8 or 800 units each - is legislated absolutely without exception to have prepared an RFS by legislated, qualificationed, professional RFS preparers, with 3 year interval updates without & with a live inspection, not subject to direct owner vote in any way. Regulations prescribe as much as 30 year replacement horizon by template, but longer term items should be included. Many complex RFS items are far beyond DIY preparation by content even if templates appear to have been filled in. How many 8 unit condo corp's happen to have the skills in-house ?

The joke is that without condo police, it is left to the tender mercies of the marketplace of real property values unless one is living in a condo community of extreme "lot line condos" without a "built" common element nor common element roads etc. Decades of flat out illegality have left underfunded time bombs ticking everywhere here. ( But in perspective glass panels are shearing off downtown condo highrises barely completed.) Best to check your state's condo act Bob D (not in new york but nearby)

Good catch.

Awaiting an answer.

Tim - Thanks for the info. I originally searched for HOA reserve study info in Oregon. I'm not trying to pull a fast one, I'm just trying to get this project done at minimal cost.

I know this is an old post, but take a look here ..

http://reservestudyhoa.com/

So here are some commonly asked questions and answers that we get from boards of directors regarding reserves:

1) What types of bank accounts are operating funds and reserve funds held in, respectively?

Answer: Association funds should be held in financially stable, federally or state-chartered banks and/or savings and loans that provide government guarantee on deposits. Also, the financial institution that the association utilizes should have appropriate control procedures available to the association to make sure at minimum two active board members are involved with any transfers out OR between their bank accounts. If your association bank account allows for just one signature to be able to pay bills or move funds then the community is in harm’s way. Don’t ever let that be the case.

2) How much money should a building or association hold in reserve at any given time? How is that figure determined?

Answer: This can change dramatically from association to association. In fact, there is an entire industry support area around reserve study analytics for communities. However, conceptually, this is like the community saving up the funds equal to depreciation of major capital equipment so that when the time comes to replace a capital item, they have the money needed already there. Major items include but are not limited to: air conditioner/chillers, boilers, driveways/parking structures, balcony and/or steel frame maintenance, roofs, social common area maintenance (ie lobbies, walkways, meeting rooms/game rooms/media rooms, pools, and many others.

3) Aside from not being able to complete necessary repair/replacement projects, what are some other possible ramifications of inadequate reserve funding?

Answer: The association may need to pass a special assessment to raise money when needed. This may result in a disproportionate burden for repairs and maintenance being borne by current residents/owners rather than having properly raised the funds from people who have owned units in an association’s past when it had the opportunity to have them pay into reserve accounts.

For example, in some states, members must actively waive funding reserves from their budgets in a vote of the entire community membership. It is not a good idea to NOT fund reserves and partially funding is not optimal but this is an important decision.

Depending on the urgency of a repair/replacement and specific financial parameters for the community association.

May be forced to borrow funds at higher interest rates than may be offered by traditional banks.
If repairs/replacements are not done in a timely manner, the association may be exposed to fines/violations from the town/city/community in which they are located.
At some extremes, and likely very rarely, certificates of use/occupancy may be pulled/revoked requiring the building to be abandoned until the situation is rectified. For example, this could happen if there was a functional problem with fire safety or other life safety issues in a building.
4) What are the most common ways condos or HOAs can beef up their reserves?

Answer: – Increase the amount they set aside on an annual basis to help catch up on prior year amounts that were not funded. Pass special assessment (one time or on going for a specified limited time) to catch up on funding reserves. Another way is to look into your books and see if the association has lost any money from bad debt write offs in the last five years. This money may be collectible and should not be automatically written off as bad debt.

5) What are some reasons why raising fees or special assessments might not be appealing to a board looking to increase their reserve fund?

Answer: These are not always politically popular. Board members may not want to be viewed by their neighbors as the one raising maintenance fees. Just like in our government entities, sometimes the answer involves cutting spending but that is not a smart move in the real estate business. The object is to increase property value and cutting necessary expenses in a community association is a sure way to reduce the properties’ appeal.

In community associations, depending on the financial situation (which vary dramatically), raising revenue by increasing maintenance and/or passing special assessments may be a necessary hardship to balance the budget and maintain or increase property values. Its all too easy for a board to kick the can down the road but when something needs repair or replacement do it right away.

6) Please discuss alternatives to common reserve funding strategies — different loan products? bonds? investments?

Answer: We can’t think of a circumstance where it would make sense in today’s markets to borrow funds to fund a reserve account. This is because the likely returns on any reserve account would be very low single digit returns while the cost of borrowing such funds would be higher. Therefore, saving for reserve funds is important. If an association must later borrow to fund a capital improvement for which they haven’t saved already, the overall cost to the association’s members will be higher due to the need to pay interest on a loan.

So, there you have it. Some important information on Reserves that every board of director and community association manager should know.

You know George I could do that but it would be in violation of the law. Also, the information that I post is not boilerplate but are informational articles that I myself wrote. I think they are pretty informative. Do you think there is any good information there? Why don't you comment on the content and we can talk about that. I teach CEU courses in Florida for Community Association Managers so I certainly have the knowledge and I have been a licensed manager for 12 years. So why are you giving me a hard time when I'm not trying to sell anything (I don't do reserves), I have not put out my name (GenoS is my publicist who exposed my name and bio), I don't have any links in the post, and I'm only trying to convey solid information and experience? Why? So instead of giving me a hard time about my articles which I have been told are pretty good, why don't you engage me on the issues? This is my work and I happen to like doing it.

You are the one who copy & pasted articles you wrote and published on other websites. A 5-year old could have figured out who you were in about 2 minutes. Understandable mistake, though. No one ever accused debt collectors of being too bright.

Oh, absolutely.

Well said.