Help !!! We need a reserve study - don't we?

Our bylaws and CCRs say nothing about reserves. I have read in posts here that a reserve study will identify all items that you will expect to pay for from reserves, anticipated lifespans, estimated repair/replacement costs, and a funding plan for how much you should contribute each year.

Our 30-plus-year-old 32-unit Pennsylvania condominium development has never had a reserve study completed. We are concerned about future repair and replacement costs as our concrete sidewalks and patios, and our 70+ parking spaces of asphalt, are both original.

After 30 years we are starting to enter what seems to be a period of escalating repair costs, as in calendar 2013 and 2014, we spent an additional $10,000 during each of those two years on repairs, taken out of our reserve fund, which is now down to just $30,000. Our roofs were replaced with 25-year Owens Corning shingles in 2001 at a cost of $41,000. If those shingles last until 2026 (25 years), re-roofing at that time could easily cost $60,000 or more.

We have no idea how to complete a reserve study, or who or what to turn to as a resource. We have three officers on our Board, as the others previously quit, and of course no one wants to do anything, so that leaves just the President (me) to do most everything personally -- and I already have my hands quite full with just managing the place.

The owners here, myself included, have previously stated that we do not want any property management firm involved, as that would raise our costs. So any guidance, direction, suggestions, or resources that you can point us toward regarding conducting a potential reserve study; will be greatly appreciated. In advance, thank you.

The reserve study we had done back in 2012 has made all the difference in the world in terms of homeowner understanding of what will be needed in the future for replacement or restoration of our capital assets.

Seems like i remember us paying about $3200 for our professional reserve study back in 2012. I would not recommend that u try to do it yourself. IMHO, it's some of the best money we've ever spent.

My advice would be to "do it".

oljim, in texas

See this thread on this forum:

Subject: Reserve Studies/Funds 101

Using the above link to that thread will provide you with a slew of resources that explain the process, why a study should be done, how to do one yourself if you don't want to hire someone, etc.
Some earlier links in that thread may be broken but were corrected later on in the thread.

As for finding reserve specialists, do an internet search for Reserve Study specialists [name of area you live in] or check out your local CAI chapter website resource page for some recommendations.

We are a 130 lot town home development, HOA not a condominium, and limited amenities (roads/parking area, signage, 2 entrance monuments, a bus stop gazebo, sidewalks and 2 playgrounds. Like you, our development was built in the late 70s and transferred to member control in 1980. So we are 35 years old. As the above referenced thread states, I did our first study in 2010. It was done using historical costs and consultations with various companies. It wasn't great, but it was better then what we had, which was nothing.

At the time we did the study, we had a whole $42,000 in reserves. We now have over $150,000, are on track to have enough to mill and pave our streets in 2021 and have done a lot of reserve work over the years ($99,965 worth since the study). The study showed we required a 20% increase in assessments. The membership voted for the increase because we could show them how it was going to be spent (based on the study).

One thing we did do was build in a contingency fund for the Reserves. We are currently putting $2500 a year into that line item (plus all interest earned on the account). That line item has helped a lot, as it provided an way to cover miscalculations in our study. I strongly urge you to consider a similar line item in your study. We did cap that item at $50K (if it ever reaches that amount). Currently we have $16K in that line item. It's identified to be used for reserve items budget shortfalls and extra heavy snow removals.

We just awarded a contract for our first professional study. We found 5 companies we sent RFPs to (request for proposal). 1 declined saying we were outside their area, the 4 others provided bids. 3 were local 1 was a national chain that also had a local office.

Cost of the study was $2,200. We had budgeted $3,000 for the work.

If you would like a copy of the RFP and/or other specific info, feel free to e-mail me:
[email protected]

Hope this helps,

Tim

Yep, you need a study yesterday and that's not soon enough! I wouldn't be surprised if this came up years ago but some in your community balked because of the costs - and now they may have some special assessments heading their way, even with a reserves study.

After educating yourselves on reserves using some of the resources given here, I would advise homeowners on what you're about to do and why. When the study is complete, call a special meeting where the specialist can give a presentation on the findings and his/her recommendations. When homeowners are kept in the loop, most of them will go along, although they may not be entirely thrilled. You will hear the "I'm not going to be here in (X) years, so why should I pay for improvements I'll never see" argument and that thinking is exactly why your community may be in this mess.

Since it appears you don't appear to have any reserves, you may need a special assessment just to get some initial cash to set up an account. Be sure to talk to your banker about setting it up. Generally, reserves should stay separate from the operating budget and a portion of your assessments should go towards that account. This is not money that should be invested in the stock market because the principal balance could decrease - quickly. You'll want to talk to a qualified person about finding safe investments (usually money market funds or CDs) for the money.

While you're at it, go ahead and set up a formal reserve policy that will address issues like what component is considered a reserve item, how the money should be invested or not, how often reserve studies should be done, etc. I'd also address borrowing from reserves, which usually is a terrible idea - if you must, set out a policy that dictates the circumstances when this can be done and how soon the money has to be replaced. Good luck!

Sounds like excellent thinking to me DjB2. Let us know how this goes for you - okay?

oljim, in texas

PA does not have any statutory requirement to conduct a reserve study or to fund reserves.

Prior to resale and upon seller's request, the HOA must provide the amount held in reserves and the proposed capital expenditures for the current year and for each of the next 2 years.

Good job, DjB2. The best way to "sell" a dues increase for the purpose of boosting reserves is to show the alternative in stark dollars and cents down the road. Number 2 on my list is that banks and lenders like to see reserves fully funded. When they are, it bodes well for the future of a building or community, as far as upkeep and major maintenance projects go, and lenders see it as a bit of protection for their investment.

The watchword of most directors here is ADALAP, which stands for Always Do As Little As Possible. The current and past boards here have avoided reserve studies like the plague because getting one done would surely result in more work to do. Florida doesn't mandate reserve studies for HOAs and that has got a lot to do with it. If they were required by law then I'm pretty sure our board would be doing exactly what you describe.

Thomas

I agree with you. Our board has the same attitude about reserve studies and the financial condition of the community. Don't care and don't bother me.