Capital Reserve Study: Did you fund the recommended level of funding proposed by your consultant?

Started by BruceD1 • 4 replies • 2193 views

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BruceD1 (Georgia)
Posts: 59

Posted:

If not what percent?

We are in our first year as a resident controlled board in a single family neighborhood with houses in the 300s to low 400s. Our 2008 budget of $600 (set by the developer before turnover) covered reoccurring expenses only. After the turnover the developer donated $10K to “seed” the reserve fund.

Currently we have ~305 homes out of 375 lots developed. We just received our Capital reserve study from an engineering firm and they are recommending that we save $35K ($115 per homeowner) a year for the first 2 years and $40K for the following few years, before it goes u again. Construction on homes and our amenities in our neighborhood started in 2004.

Thanks.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Well, you have to look at the Annual Operating Budget and see if you CAN put $115 per assessment away into the Reserve Fund. It was a recommendation, only. - probably based on best case scenario. I wonder where they got that figure and if they looked at all the books.

What kind of obligations do you have EACH year - what are your amenities that you must take care of annually? What kind of money do you have to have in a short time, and for what repair or replacement (you talkin' elevators, here, or several pools, or roads? Your HOA seems very young, at a 2004 birthday)

You are probably very "underfunded" for where you should be for a healthy Reserve Fund and they are asking you to play catch-up. Can you do this NOW?

KirkW1 (Texas)
Posts: 1,665

Posted:

First, the time to have started the reserve fund was the the first year assessments were collected from owners. But that is water under the bridge that you can't take back. I would consider hitting the developer up for a portion of that $35k a year for two years.

I am sure the point is to make up for lost time and to have enough in case something comes up in the short term. The thing is that it is really a guessing game how long something will really last. Something projected for 20 years might last 10 or might last 30. Your fund hopefully puts you in a position that you can survive if it goes in 10 instead of the hoped for 20.

The risk of not funding it now is that you will have a larger assessment later.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By BruceD1 on 09/18/2008 12:11 PM
If not what percent?

We are in our first year as a resident controlled board in a single family neighborhood with houses in the 300s to low 400s. Our 2008 budget of $600 (set by the developer before turnover) covered reoccurring expenses only. After the turnover the developer donated $10K to “seed” the reserve fund.

Currently we have ~305 homes out of 375 lots developed. We just received our Capital reserve study from an engineering firm and they are recommending that we save $35K ($115 per homeowner) a year for the first 2 years and $40K for the following few years, before it goes u again. Construction on homes and our amenities in our neighborhood started in 2004.

Thanks.

Bruce,

Since your budget only have room for covering recurring expenses, the board should consider raising the assessments. In fact, they may have to do this for several years until they get to the point of being able to make the required contribution to the reserve fund. The fact that the developer has given the assn $10,000 as "seed" money for the reserves is a good start and actually lowers the first year requirement. Frankly, I think your assn is lucky that the developer did this; most just walk away with never contributing a penny to the reserve fund. In many states it's not a requirement to fund the reserves and many gov. docs. are silent on this also. If the board does decide to raise the assessments IMO a letter to the h/o's is certainly in order to explain the predicament the HOA is in. Developers are notorious for setting the assessments to low (their goal is to sell homes!) and the first board after turnover has the job of raising the assessments and taking the heat from the members. When I was treas. of our newly transitioned assn, I held a budget review meeting outlining all the projected income and expenses which justified the increase in assessments. Only one h/o objected and the rest of the h/o's who were present almost tarred and feathered him as they could all see the increase was certainly valid. Keeping the lines of communication open between the BOD and the members goes a long way toward promoting peace and harmony in the assn.

GloriaM (North Carolina)
Posts: 829

Posted:

This is budget time of the year. The new board should draft a budget, place in the projections and have a line item for the reserves. It takes time for Associations to fund their reserves. I am a big believer in having money in the fund so that you are never in a position of having to do a special assessment.

I believe if you plan right, be frugal in your spending, plan ahead with priority issues and fund the reserve; HOA's can be financially sound.

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