Archive for the ‘Blog’ Category

Why Some Owners Don’t Want to Properly Fund Reserves

August 31st, 2015

Reserves can sometimes be the least appealing part of the budget to board members.  It is essentially setting money aside that will not be used right away or even for many years in some cases.  Additionally, it can be difficult to determine how long something will last and what it will cost to replace.  Some communities are resistant to putting the appropriate amount of money in reserves.  There are various reasons for this. One reason is that by putting less money in reserves, the HOA/Condo


Why Large Associations Should Use the Pooled Method

June 30th, 2015

The State of Florida accepts two primary types of reserve funding: the pooled method and the component method.  The pooled method draws reserve funds from one reserve pool.  With the pooled method, there is one reserve account balance and anywhere from a few to many reserve items.   With the component method, each reserve item has its own account balance.  For example, if your association has 88 reserve items, then there will be 88 reserve balances–one for each item.  Conversely, in the same scenario with


Why Should a Special Assessment Be a Last Resort?

April 30th, 2015

The phrase “Special Assessment” can be a dirty word around a community association.  It essentially means that all members of the association pay a fraction of the cost to repair or replace something around their community.  On the surface it seems like that may be an okay way to find the funding for repairs of assets or replacement items.  But that is not a good way as I will explain.   The first reason that a special assessment is a bad way to pay for


What Should Be in the Reserve Schedule?

March 31st, 2015

The purpose of the reserve schedule is to disclose reserve information to members of the association in the annual budget.  The reserve schedule lists each reserve item, how much longer it will last (remaining life), how long it will last when new (useful life), and how much it will cost to replace (replacement cost).  Also included in the reserve schedule is the fund balance for each item or the fund balance for a pool of reserve items as well as the necessary funding amount in


Reserve Study Frequently Asked Questions Part 8

January 30th, 2015

Why are our reserve dues higher or lower than neighboring communities? The reserve dues in your association have very little to do with other associations’ reserve dues.  There are many factors that go into figuring out the current reserve dues.  Some of the main differences for current reserve dues of competing communities may be:   The date when the reserve fund was started.  If one association delayed funding reserves for several years, this may be why the dues are higher.   The strength of yearly


Why Some Associations Hesitate to Get a Reserve Study

December 30th, 2014

Associations can be reluctant to get a reserve study for a number reasons.  There can be a general misunderstanding of what a reserve study does and what it accomplishes.  Here are some of the most notable reasons community associations hesitate to get a reserve study:   We can do it ourselves. This sentiment is pretty common.  There are some times when a community can do an in-house reserve study–particularly when an association is small and only has a few assets.  However, most board members will


Should an Insurance Deductible be a Reserve Item?

November 30th, 2014

Many associations have relatively high insurance deductibles, sometimes as much as $100,000 or $200,000.  This is the case in particular in hurricane prone areas.  I have been asked several times if it should be a reserve item or how to go about funding it.  Sometimes I already encounter it in an association’s current reserve schedule when I am doing a reserve study for them.  Before I answer, let me first explain what a reserve item is.  A reserve item is a physical asset or component


Maximize Reserve Fund Interest

October 31st, 2014

One of the powerful things about having a large reserve fund balance is the ability to gain interest earned on the money in the fund.  The last several years since the Great Recession, however, have produced paltry returns, typically less than 1% for regular savings or money market accounts. Many associations just use money market accounts, where the return on the money is usually well below 1%.  There is a better way to manage those funds and get a better return.  While associations will always


Reserve Study Frequently Asked Questions Part 7

September 30th, 2014

We have to make very costly renovations to our building and do not have the reserve funds to cover it.  What should we do?  In this case, there are two realistic options the board has.  The first is to get a bank loan for the community to cover the cost of the renovation.  There are specific banks that specialize in association loans, so there may be someone willing to help.  However, the bank will only loan the association money if it has demonstrated to be


What is the Purpose of a Reserve Study

August 29th, 2014

A reserve study is a tool for budgeting.  Reserves funds are part of the budget.  A reserve study will help the association manage their long-lasting assets. Each year an association puts together a budget.  Most of the budget consists of one-year-only expenses.  The remaining portion is for items that will last longer than one year.  Even though these items last longer than one year, they get annualized (or averaged) into a one year number in the budget.  For example, if a reserve item costs $10,000

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