A service of:
Community123.com
Professional websites for HOAs & condos, since 2004
🎁 1st year FREE for HOATalk members! →
← Return to Topics List

Calculating Reserve Fund

Started by HeatherJ1 • 15 replies • 2055 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in

HeatherJ1 (South Carolina)
Posts: 89
Posted:
Hey guys! I am new here and have recently been elected onto my HOA board. This is my first experience at all with HOA so please excuse my ignorance!!!

Our association is made up of 70 single family homes that are all owned by the homeowner. We have basically no community ammenities (no pool,clubhouse, playground,trails, buildings, etc...). The only common areas we have are a small area at the front entrance (which is grass, 2 flower/shrub beds, and two small neighborhood signs) and then another small strip of grass that is alongside one of the roads.

From what I understand from my research on the internet, reserve funds are to cover repairs to common areas. But, we basically have no common areas. We pay a guy to cut the grass and that's it. The treasurer told us we have a reserve to cover legal fees but I've never heard of that.

My question is how do you calculate how much money needs to be set into reserve? We are a small association so I do not feel it would be worthwhile to pay for a reserve study which I have heard about. I am wondering if we have too much as right now, our HOA does not budget ANY money for activities/events (fall festivals, Christmas party, etc...). The HOA has been going around selling mailbox bows to generate money for the activities. Many of the residents have expressed frustration that they first have to pay HOA dues and then buy mailbox bows to have activities. Why can't the HOA dues go towards the activities? Maybe we have too much in reserve??

Thanks in advance and sorry so long!! I'm wordy tonite!!

GrahamO (Ontario)
Posts: 55
Posted:
Heather
I think I may have something "made-to-order" for you. It's a paper we've written (eventually to become a chapter in our book) called ... Create a Reserve Plan from Scratch". I will be pleased to e-mail a copy to you. Please contact me by clicking on the link below. This is available, as well, to anyone who'd like to do the same.
HeatherJ1 (South Carolina)
Posts: 89
Posted:
Thank you but I would have to call a meeting with the other board members before I could approve spending the money for that chart-unless you are offering it at no charge.

Does anyone have any free advice/ideas?
SusanW1 (Michigan)
Posts: 5,202
Posted:
Heather - does your Board release the budget to the residents? It should! All residents need to know how much is being spent, where and when.

Go to the next Board meeting and ask to see the budget. (or call the Treasurer and ask for an appointment to see ALL the financial statements.) Be sure to bring someone with you who can understand all the forms. Ask for the budget, the year-to-date- expenditures vs. that budget, and the balance sheet. Also ask to see the Reserve Fund and the plan for that, and the expenditures.

You can get a category (also called a line item) for social activities in the budget IF your documents say that is one of your "purposes" of the Association. Otherwise, all those kinds of activities will have to be generated from residents and funded by them through donations.

Good luck and keep asking here!

KirkW1 (Texas)
Posts: 1,665
Posted:
Perhaps I am wrong, but I think the offer was intended to be free.

All the same, here is how I would approach it if nothing else. I would call a couple landscape professionals and have them give you an estimate for replacing each of the major elements that you have. One thing to think about is if you have a fence or wall as well.

Also for all of the trees and bushes ask about what their life expectancy is, or if the chances of them being attached by disease or bugs.

Essentially, you don't want to be caught without funds if something goes wrong. Eventually all trees die, though some much faster then others. For instance, I believe a weeping willow only has an expectancy of 25 years.

Have a plan in mind before the trees or bushes need replaced. Think through what size of tree (or bush) you will want to buy. Of course the cost goes up astronomically with the size. You can get a 2 inch caliper tree here for $200. Go to a three inch caliper tree and it goes to $350.
MikeS1
Posts: 668
Posted:
...and all the roads, streets, curb and gutter, sidewalks, storm drains, etc are all owned and maintained by the County or City where you live? The HOA has no responsibility for these?? Is that correct?
GeraldT4
Posts: 1,022
Posted:
HeatherJ1 - You HAVE community common elements, the replacement cost of which need to be funded. Those elements to be funded from a reserve account are at the very least the small neighborhood signs. The basic concept of reserve funding is that a portion of the monthly dues needs to be transferred to a reserve account so that when it's time to replace the common element (signs) the money will be there to do so. So common sense will dictate that you will need to know the expected life-span of the element (signs), and the current cost of replacement. Take the cost of the signs and divide by the number of years the sign is to last, divide that by 12 months, and you'll have a minimum number that needs to be transferred into the reserve account. Say one sign costs $3,000 and it will last 15 years. Given this hypothetical, at a minimum apprx. $200 per year needs to be transferred to reserves. HOWEVER, that method of funding is called Full Funding and needs to consider inflation, and the possibility that the signs may need to be replaced earlier than expected. Meaning there are factors your Board members need to consider in their reserve fund calculations. Even though your common elements are few, the same concepts that apply to large associations must be considered. Go to http://www.cairf.org/research/bprs.pdf for a very good guide on Reserve Funding, as well as listen to Graham O. He's an expert on Reserves and his help is well worth the expense.
HeatherJ1 (South Carolina)
Posts: 89
Posted:
Thanks so much for all of the feedback, everyone!! I really appreciate it!

I will have to get a copy of our budget. Apparently, we have 2 treasurers. I am the treasurer for the Activities and Events community only and I'm now also the secretary. And then we have the main treasurer. I'm kinda confused but I guess it works for them. So, the covenents have to say HOA is formed to hold activities? It says the "declarant further desires to create an organization...in order to efficiently perserve, protect and enhance the values and amenities in Hunter Place to insure the residents' enjoyment of the specific rights, privileges and easements in the common area, and to provide for the maintenance and upkeep of the common area."

I just don't understand how a resident is paying $180 for entrance signs, some street lights, and non paid board members to enforce rules.

Yes, the county is responsible for all roads. We did have to pay to install extra street lights and of course the power for them each month. We have a line item in the budget for plants, mulch, and other landscaping needs. We have no fence or wall or anything structural like that.

I think much of my confusion is that the other night, our treasurer stated that our $5000 reserve was JUST for legal costs if we get sued. He mentioned nothing about maintaining items in the common areas or the signs at the entrance (here's a link if you wanna see them...(http://www.hoatown.com/huntersplacehoa/). We have one on each side of the entrance road.

Great info, Gerald, that really helps on determining replacement cost, etc...

Like I said, I'm new to all of this so I'm sure I'll be here often! Thanks again!!!!

GrahamO (Ontario)
Posts: 55
Posted:
Heather (and others). I guess I left out the all-imporant word FREE. My paper "Create a Reserve Plan from Scratch" is free-for-the asking. It is INTENDED to become part of our book but is not yet included in it. Next edition.

So, again ... just click in the signature area to reach me so I can get one off to you.
Graham
HeatherJ1 (South Carolina)
Posts: 89
Posted:
Thanks for the info, Graham. It does seem that a reserve is for major repairs and replacements of common area elements, not legal fees. Interesting.

For anyone else that can help:

Does everything else seem normal for our HOA as far as 2 treasurers and the events funding?
SusanW1 (Michigan)
Posts: 5,202
Posted:
That's OK - apparently you must have a budget for your activities.

Where do you get your operating money from?

Do you have your own checking account?

Do you make an end of the year report to the board?

Seems the board wants separate accounting for the activity fund. That's fine. The bottom line figure is brought over to the HOA main treasury transactions.

HeatherJ1 (South Carolina)
Posts: 89
Posted:
Quote:
Posted By SusanW1 on 09/19/2008 3:52 PM
That's OK - apparently you must have a budget for your activities.

Where do you get your operating money from?

Do you have your own checking account?

Do you make an end of the year report to the board?

Seems the board wants separate accounting for the activity fund. That's fine. The bottom line figure is brought over to the HOA main treasury transactions.


The budget for the activities comes from selling mailbox bows. $5 each and we put them out for Easter, Halloween, and Christmas. But, I've had many people complain that they do not like the fact that they HAVE to buy the bow or we have no activities. Some people don't even buy the bows so we really do not know from year to year (or even holiday to holiday) how much money we will have for activities. I just think since we had a surplus last year (they reduced HOA fees by $20 so therefore a $1400 surplus), why the need to make ppl buy bows?? I MUST be missing something. OH well. I'll ask at our first board meeting.

Yes, there is a separate checking account just for this committee.

There is an excel spreadsheet shown to the board along with receipts for the transactions from the checking account.
SusanW1 (Michigan)
Posts: 5,202
Posted:
Sounds like the "bows" have run their course for fundraising.

Have the committee think up another fundraiser for your social activities.

Do as much as you can with as much money as you have. The residents should kick in things, too (like donations of food, time, games, etc)

This is not a "bricks and morter" committee, so sometines it's hard to guestimate just what the residents want. Plus, if the age group in the neighborhood are those pesky late-teens, they don't want to do fun things anymore. So you are going to have to take the pulse of the neighborhood constantly, to see what everyone wants for a social activity.

In our sub - it's the little ones AGAIN - after a 10 year lapse. I love it, even though all mine are gone. It's great to see the little ones at parties.
JoannW (California)
Posts: 1
Posted:
Does anyone have a sample reserve study excel spreadsheet? I tried to do one but it was difficult to forecast from year to year.
JosephH2 (Pennsylvania)
Posts: 57
Posted:
Hi Graham,

I'm very interested in a copy of your paper but can't figure out how to contact you. Would you please post an email address?

Thanks,
JoeH
Pennsylvania

🎯 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

Terms of Use and Privacy Statement