Reserve Study and capital reserve budgets

We are a small community with 76 homes. We have a lot of common area, so landscaping is our biggest expense. We do have a pool and a clubhouse. We just took over from the builder and have about 45k to devote to our reserve fund. I'm struggling with the best format and accrual method to save money for our capital expenses. Any advice would be much appreciated

With Tim, I agree you should get a reserves study done by a certified reserves analyst. S/he'll list all of the times (components) your HOA should reserves (save up) for their eventual repair and replacement. The analyst will sliest how long its life is when new (estimated life), how much life that component has left (remaining useful life of RUL) and the estimated cost to repair and replace it.

You may have more components than you think, e.g., sprinkler systems, roads, curbs, exterior lighting of your common areas. You have a clubhouse but the study might estimate for roof repair and then for roof replacement; carpeting replacement will be a separate item; painting the exterior or residing it, a separate component. Why? Because they each have different estimated lives.

Ditto, the pool. It'll need to be resurfaced, it has pumps & motors involved, and may need new pool deck area some day.It has a fence around it. If you have a lot of poolside furniture, it may need to be restrapped in a few years and replaced in several.

So, get a study done and after it, your HOA board might be able to update it itself. The analyst yet will advise you how much to contribute a month so that you can repair and replace these in the future without having to resort to a social assessment.

Those repairs and replacements are not "capital expenses," which are for new things or big upgrades to something you're replacing, e.g., replacing a cheaper clubhouse roof with tiles.

Though a CA attorney's HOA website, visit Davis-stirling com, Main Index, Reserves, to see much info that applies nationally, not just to CA.

This place has a really good website about reserve studies including a nice example study. Disclaimer: I have no affiliation with them. My HOA has never dealt with them. I don't even think they operate in Florida.

One thing an outside Reserve Study will do for you is tell you things you probably don't want to hear. Preparing an in-house pseudo-study won't do that because often a board of directors will pre-determine the outcome it wants to see ("Yeah, don't include the pool in there."). I've been advocating for my HOA in Florida, where reserve studies are not mandatory, to get an outside independent Reserve Study done for 4 years. No luck so far.

With a reserve study such as the sample one above, I think the majority of associations will be lucky to have one or two board members who can even begin to comprehend it. I'd say "vast majority" but my sample size is too small to make that generaliztion. Last year I had a few color copies of the above sample reserve study printed and passed them around to directors and members of our Finance Committee. I said, "Imagine if we had something like this tailored for our community!" I received no feedback from any of them. Zero.

I believe you are correct about an outside study providing information that the Board may not want to hear. I believe, more likely though, is that an outside study -- assuming from a reputable provider -- will be less likely to leave something out.

In our HOA, we had an outside provider do a study and they were dreadful. They did not leave anything of importance out, but they performed the financial computations incorrectly. And ... they made inappropriate recommendations that were just dreadful for our community. I took it upon myself to remedy that and came up with a much better study.

Steve

I can see how mistakes could happen, especially with the list of components and estimated costs, but where the actual financial calculations are performed - a mechanical process - I'd expect none. Especially if we were paying for it.

I inherited an Excel spreadsheet that had been in use here for years to calculate straight-line (component) reserve requirements. A CPA has been updating it annually until he sold his house and moved. There was a simple error in one of the formulas that had gone unnoticed forever until I became the first "another pair of eyes" to ever look at it. In the big picture it was rather inconsequential, but it was a good example of how even simple things can be overlooked.