RobertW35 (Florida)
Posts: 48
Posts: 48
Posted:
Florida 55+ community. First year budget after developer turnover. Need to fund reserves. Wanted to include in HOA fees instead of a special assessment.
Any thoughts ???
Any thoughts ???
A service of:
Community123.com
Professional websites for HOAs & condos, since 2004
Professional websites for HOAs & condos, since 2004
🎁 1st year FREE for HOATalk members! →
Assessments vs Increase HOA fees
Started by RobertW35 • 14 replies • 391 views
💬 Join us to post & get advice from 50,000 HOA & Condo leaders.
Create Free Account →
⚡ Takes 30 seconds
Already a member? Log in
ElleN (Idaho)
Posts: 1,333
Posts: 1,333
Posted:
Quote:
Posted By RobertW35 on 11/19/2024 12:02 PM
Florida 55+ community. First year budget after developer turnover. Need to fund reserves. Wanted to include in HOA fees instead of a special assessment.
Any thoughts ???
Florida 55+ community. First year budget after developer turnover. Need to fund reserves. Wanted to include in HOA fees instead of a special assessment.
Any thoughts ???
To help fund reserves, I think an increase (if needed) in the regular assessment is preferable to a special assessment. I believe the only caveats are (1) any limits the Declaration, bylaws or FS 720 might place on assessment increases; and (2) make sure you follow the guidance in the (presumably recently completed) reserve study regarding assessments needed to fund the reserves.
DeanJ
Posts: 1,786
Posts: 1,786
Posted:
Quote:
Posted By RobertW35 on 11/19/2024 12:02 PM
Florida 55+ community. First year budget after developer turnover. Need to fund reserves. Wanted to include in HOA fees instead of a special assessment.
Any thoughts ???
Florida 55+ community. First year budget after developer turnover. Need to fund reserves. Wanted to include in HOA fees instead of a special assessment.
Any thoughts ???
You have the correct idea.
Without a reserve study of some type, the discipline to maintain the reserve contribution each year tends to get challenged by the “we already got all that money” / “you don’t need all that money” owners who want artificially low assessments.
The reserve study should the estimated replacement costs today, an inflation factor and provide for increased contributions each year.
The reserve study then needs updated every 3-5 years to determine if the reserve study is remaining accurate.
JohnC46 (South Carolina)
Posts: 14,265
Posts: 14,265
Posted:
Quote:
Posted By RobertW35 on 11/19/2024 12:02 PM
Florida 55+ community. First year budget after developer turnover. Need to fund reserves. Wanted to include in HOA fees instead of a special assessment.
Any thoughts ???
Florida 55+ community. First year budget after developer turnover. Need to fund reserves. Wanted to include in HOA fees instead of a special assessment.
Any thoughts ???
I agree that Reserve Funding should be line item expense allowing it to build over time versus a one time hit.
KerryL1 (California)
Posts: 14,550
Posts: 14,550
Posted:
With others, I believe reserves are normally funded as a part of the annual budget. Our dues are paid monthly and 36% of them go to fund our reserves.
But, hold it.
Are you saying the developer has NOT been funding reserves???? Are you saying there has been no reserves study??? Of all states , I'd think FL would make that a requirement before it approves any new HOA!!! I think I've read here that it does.
For any HOA that's just undergone turnover, even if you have a reserve study and it has been funded by the developer, take a close look at each reserve component. Some HOA have a "Turnover committee" but it does it' investigation before turnover. To keep the initial dues low to entice buyers, some developers underestimate the replacement/repair cost of some components. And overestimate the estimated useful life of others. (Ours did) In addition they sometimes "miss"" a component.
But, hold it.
Are you saying the developer has NOT been funding reserves???? Are you saying there has been no reserves study??? Of all states , I'd think FL would make that a requirement before it approves any new HOA!!! I think I've read here that it does.
For any HOA that's just undergone turnover, even if you have a reserve study and it has been funded by the developer, take a close look at each reserve component. Some HOA have a "Turnover committee" but it does it' investigation before turnover. To keep the initial dues low to entice buyers, some developers underestimate the replacement/repair cost of some components. And overestimate the estimated useful life of others. (Ours did) In addition they sometimes "miss"" a component.
LoriM15 (Florida)
Posts: 1,009
Posts: 1,009
Posted:
Everyone else has given you great advice. Having the reserve funding as part of the regular assessment is the way to go. But you didn't even mention if you have a reserve study. That's the most important item. And if the developer already turned over the community, didn't you have to go over everything in the turnover and make sure they had reserve funding in place? Or that all of the common property was in good shape and being turned over that way? Usually there is negotiation that goes on before final turnover.
There is no limit in FS 720 on assessments and how much they can increase. But your documents may have some restrictions. It is incredibly important that you know your declaration backwards and forwards and that you are familiar with FS 720 and especially the new regulations that were put into effect this year, many of which go into effect January 1, 2025. Very complex and very important that you make sure the HOA is complying.
There is no limit in FS 720 on assessments and how much they can increase. But your documents may have some restrictions. It is incredibly important that you know your declaration backwards and forwards and that you are familiar with FS 720 and especially the new regulations that were put into effect this year, many of which go into effect January 1, 2025. Very complex and very important that you make sure the HOA is complying.
SheliaH (Indiana)
Posts: 6,964
Posts: 6,964
Posted:
Quote:
Posted By DeanJ on 11/19/2024 12:39 PM
Posted By RobertW35 on 11/19/2024 12:02 PM
Florida 55+ community. First year budget after developer turnover. Need to fund reserves. Wanted to include in HOA fees instead of a special assessment.
Any thoughts ???
Florida 55+ community. First year budget after developer turnover. Need to fund reserves. Wanted to include in HOA fees instead of a special assessment.
Any thoughts ???
You have the correct idea.
Without a reserve study of some type, the discipline to maintain the reserve contribution each year tends to get challenged by the “we already got all that money” / “you don’t need all that money” owners who want artificially low assessments.
The reserve study should the estimated replacement costs today, an inflation factor and provide for increased contributions each year.
The reserve study then needs updated every 3-5 years to determine if the reserve study is remaining accurate.
And don't forget part of the reason Florida condo and HOA communities are going through lots of drama now is because they figured it would be easy to raise the money via special assessments - thinking that by the time that went down, THEY would have already sold their homes and now have to worry about it. If your neighbors need further convincing that proper funding of reserves is vital, have them read some of the articles that came out after Surfside and what's been going on with that new law concering mandatory engineering studies for condo buildings.
And when you get your reserve study (please do that before doing anything else), call a special homeowners meeting and have the specialist give a presentation on the findings and how it impacts the budget so people can ask questions and make informed decisions. Good luck!
If it is not right do not do it; if it is not true do not say it. Marcus Aurelius
ElleN (Idaho)
Posts: 1,333
Posts: 1,333
Posted:
Quote:
Posted By LoriM15 on 11/20/2024 8:45 AM
if the developer already turned over the community, didn't you have to go over everything in the turnover and make sure they had reserve funding in place?
...
There is no limit in FS 720 on assessments and how much they can increase.
if the developer already turned over the community, didn't you have to go over everything in the turnover and make sure they had reserve funding in place?
...
There is no limit in FS 720 on assessments and how much they can increase.
LoriM15 (Florida)
Posts: 1,009
Posts: 1,009
Posted:
Quote:
Posted By ElleN on 11/20/2024 8:54 AM
I am concerned that, if no reserve account presently exists, this Board has to take certain rigorous, statutorily required steps, including an owners' vote and other demanding requirements for reserve accounts. See FS 720.303 (6), parts (d), (e), (f) and (g). Posted By LoriM15 on 11/20/2024 8:45 AM
if the developer already turned over the community, didn't you have to go over everything in the turnover and make sure they had reserve funding in place?
...
There is no limit in FS 720 on assessments and how much they can increase.
if the developer already turned over the community, didn't you have to go over everything in the turnover and make sure they had reserve funding in place?
...
There is no limit in FS 720 on assessments and how much they can increase.
Yikes. I never read that part because every HOA I am aware of that was established within the last 25 years has reserves.
We need more info from the OP about 1) what they currently have, including any reserve funding and a reserve study and 2) what their governing docs say about reserves.
If there are no established reserves and no funding and nothing in the governing docs, it's time to seek out an experienced HOA attorney.
KerryL1 (California)
Posts: 14,550
Posts: 14,550
Posted:
Right, Lori, that's why I wrote my way above.
MarshallT (New York)
Posts: 414
Posts: 414
Posted:
Yes, stick with increasing regular fees (assessments) as that is less difficult for owners to pay, and it helps ensure there is always enough money in the reserves (as opposed to a one time infusion of cash).
ReneeL4 (Florida)
Posts: 6
Posts: 6
Posted:
Depends on how soon you need the money. IF you need the money all in the first half of the year, then you will need to do a Special Assessment. Otherwise, if you have to wait for each line item in your reserve to build up across the year - there might not be enough money save up for when you need to spend it, in that financial year. That would force you to borrow from other places in your budget. So, think strategically first about cost, timeframe of replacement, & payment. Then make your decisions accordingly.
a) If it's a reserve item that is not needing replacement for 3+ years (depending upon overall amount needed to be raised), then I'd do it via increased HOA reserve portion. Gradually over time building up the monies needed for replacement.
b) If it's a reserve item, not needing immediate replacement, but is a big-ticket amount, then do a Special Assessment payment, over a few years to gradually build up the account. If it is raised as a Special Assessment, then it can only be spent for what it was raised for. That is financially easy for both the Board & Owners to track each year. Since, on the accounts it will have its own line.
a) If it's a reserve item that is not needing replacement for 3+ years (depending upon overall amount needed to be raised), then I'd do it via increased HOA reserve portion. Gradually over time building up the monies needed for replacement.
b) If it's a reserve item, not needing immediate replacement, but is a big-ticket amount, then do a Special Assessment payment, over a few years to gradually build up the account. If it is raised as a Special Assessment, then it can only be spent for what it was raised for. That is financially easy for both the Board & Owners to track each year. Since, on the accounts it will have its own line.
RobertW35 (Florida)
Posts: 48
Posts: 48
Posted:
Hi Kerry
The Developer did not contribute to reserve funds. Instead he chose to deficit fund the budget before turnover. After turnover the now based community Board of Directors had a company come and do a Full Reserve study.
The Developer did not contribute to reserve funds. Instead he chose to deficit fund the budget before turnover. After turnover the now based community Board of Directors had a company come and do a Full Reserve study.
SheliaH (Indiana)
Posts: 6,964
Posts: 6,964
Posted:
Quote:
Posted By RobertW35 on 12/04/2024 4:28 AM
Hi Kerry
The Developer did not contribute to reserve funds. Instead he chose to deficit fund the budget before turnover. After turnover the now based community Board of Directors had a company come and do a Full Reserve study.
Hi Kerry
The Developer did not contribute to reserve funds. Instead he chose to deficit fund the budget before turnover. After turnover the now based community Board of Directors had a company come and do a Full Reserve study.
In that case, you may need to do both. Start with a special assessment to provide a foundation, then set up your association where a portion of the assessments will be deposited into reserves and the rest used for operating expenses. The reserve study recommendations should help you determine how much that portion will be, and since you don't have anything right now, that portion will need to increase every year - and that means you're looking at regular assessment increases.
Other tips (and you've gotten some good ones already)
Keep the reserves in a separate account from the operating fund.
DO NOT use reserves as a slush fund for anything and everything.
The board should establish policies and procedures, addressing issues like:
definition on what a reserve item and expense is, vs. something in the operating budget
reserve fund investments - this isn't something you should put in the stock market because the principal balance has to be preserved. It should be placed in an interest bearing account or CDs - some associations "ladder" the redemption dates, depending on how soon you'll need the money. There are old conversations on this website about that, or you can talk to your association bank about your options. By the way, if a different bank has better interest rates, it's ok to keep reserves in one bank and operating budget in another
mandate a reserve study every five years so you'll use updated numbers for planning your budget
There are other ideas in old conversations on this website, so read them and bring your questions back to this one so you'll get current information.
If it is not right do not do it; if it is not true do not say it. Marcus Aurelius
DeanJ
Posts: 1,786
Posts: 1,786
Posted:
Quote:
Posted By SheliaH on 12/04/2024 5:51 AM
Posted By RobertW35 on 12/04/2024 4:28 AM
Hi Kerry
The Developer did not contribute to reserve funds. Instead he chose to deficit fund the budget before turnover. After turnover the now based community Board of Directors had a company come and do a Full Reserve study.
Hi Kerry
The Developer did not contribute to reserve funds. Instead he chose to deficit fund the budget before turnover. After turnover the now based community Board of Directors had a company come and do a Full Reserve study.
In that case, you may need to do both. Start with a special assessment to provide a foundation, then set up your association where a portion of the assessments will be deposited into reserves and the rest used for operating expenses. The reserve study recommendations should help you determine how much that portion will be, and since you don't have anything right now, that portion will need to increase every year - and that means you're looking at regular assessment increases.
Other tips (and you've gotten some good ones already)
Keep the reserves in a separate account from the operating fund.
DO NOT use reserves as a slush fund for anything and everything.
The board should establish policies and procedures, addressing issues like:
definition on what a reserve item and expense is, vs. something in the operating budget
reserve fund investments - this isn't something you should put in the stock market because the principal balance has to be preserved. It should be placed in an interest bearing account or CDs - some associations "ladder" the redemption dates, depending on how soon you'll need the money. There are old conversations on this website about that, or you can talk to your association bank about your options. By the way, if a different bank has better interest rates, it's ok to keep reserves in one bank and operating budget in another
mandate a reserve study every five years so you'll use updated numbers for planning your budget
There are other ideas in old conversations on this website, so read them and bring your questions back to this one so you'll get current information.
Unless the +55 community took a lot of years to complete and/or bas substandard infrastructure that is going to require an expensive replacement or repair in the next few years, there is no need for a special assessment now to get a reserve started.
The reserve study will provide for portion of the normal assessment that has to be reserve funding.
🎯 You've read this entire discussion
Join the conversation with 50,000 HOA & Condo Leaders:
- ✓ Ask follow-up questions
- ✓ Share your experience
- ✓ Get expert advice
- ✓ Access 350,000 discussions
Create Free Account →
⚡ Takes 30 seconds
Already a member? Log in here