HOA FINANCIAL ACCOUNTS - BALANCES

Started by VictoriaW • 5 replies • 1065 views

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VictoriaW (Georgia)
Posts: 1

Posted:

Our HOA is carrying a balance equivalent to about 60% of our annual income/outlay. Is there a recommended amount of money an Assn should keep on hand for unexpected expenses (i.e., legal, repairs, etc.)?

GlenL (Ohio)
Posts: 5,491

Posted:

A reserve study would give you the amount recommended for your Association, what is right for one might not be enough for another. If you do not know what a reserve study is or how to get one done, type reserve study in the search box and you will see the many posts on this subject.

Studies show that 5 out of 4 people have problems with fractions

MaryA1 (Arizona)
Posts: 7,043

Posted:

Glen,

Please explain how a reserve study determines how much cash on hand an assn should have. A reserve study determines the amount of money to be held in reserve for future outlays for repair and replacement of capital items.

JosephW (Michigan)
Posts: 882

Posted:

Victoria,

If the money set aside is not for capital repair and replacement reserves (in other words, if you have a separate fund for that) then this would be considered a contingency reserve, for unexpected expenses during the current fiscal year. The amount to place in a contingency reserve would depend on where your association is and what it could face in unexpected costs. For example, up here in Michigan, associations usually set a little extra aside to cover additional snow removal and ice melting chemicals in case the winter is particularly bad (worse than average). They also usually set aside enough to cover one or two association insurance deductibles, in case of a fire or accident or some other insurance claim against the association. Last, they may set some aside for unexpected increases in normal expenses. For example, a couple of years ago, with only 30 days notice, the county jacked the water and sewage fees significantly, which blew out a number of association budgets, since it really came out of the blue. The AZ people may be able to do a better job of telling you where you might see these kinds of expenses.

If the money is, in fact, for capital repairs and replacements, then you will need to have a reserve study done to tell you what the appropriate amount you may need on hand from year-to-year would be. Capital repairs and replacements are items that are not taken care of on an annual basis, and therefore not part of the annual budget. They could range from road re-surfacing to pool equipment and re-surfacing, or other major expenses. Do a search on "reserves" to see more.

Joe

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SusanW1 (Michigan)
Posts: 5,202

Posted:

Our HOA has an annual operational budget, a semi-restricted emergency fund; and a a restricted reserve fund.

At the end of the year, we like to keep 3 or 4 month's operational costs as a year-end balance "cushion"

JosephW (Michigan)
Posts: 882

Posted:

Sorry Victoria, I meant others from Georgia - just saw a bunch of AZ's up there and made the wrong assumption.

Joe

Joseph West
Official HOATalk.com Sponsor
Community Associations Network, LLC
www.CommunityAssociations.net
*See legal notice below (end of page) or go to www.hoatalk.com/legal

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