Wednesday, August 28, 2013

The Risk of Failing to Reserve


Our Latest seminar, titled, The Risk of Failing to Reserve was held on Tuesday, August 20.  Fifteen Board Members were in attendance and the comments collected were very encouraging.  If you were unable to attend, I have pulled out some of the highlights and we have also posted the power point presentation from this Seminar for your review. 

Seminar Highlights: 
Reserves are a function of developing a budget.  As an association, we need to ask ourselves, do we want to budget for the amount of fees we assess or do we want to budget based upon the needs of our communities.  The needs of our communities include replacing general common elements (GCE) once their effective life is over.  To determine what those GCE’s are and their current replacement cost is a major component to developing a reserve study.  The rest of the study is a mathematical exercise that is easily attained.

We are at the budget time of year for most communities.  Approximately 70—80% of your budget should be easily determined based on fixed expenses outlined in your governing documents.  The cost of sewer and water, electricity and insurance can easily be determined by examining your budget worksheet provided by your site manager or at one of our budget workshops.  The balance of your budget needs can be completed by talking with your Board about maintenance needs routinely provided by your community.  The reserve allocation must be addressed based upon the current status of your GCE and the current cost for construction labor and materials.  Your managing representative can provide the name of reputable companies who can produce a professional reserve study for your communities’ use.

Funding reserves takes nerves of steel, a resolve to address tomorrows concern and a choice to raise today’s fees a minor amount to avoid large additional assessments in the future.  The choice is yours and the implications impact your entire community.