Archive for the ‘Blog’ Category

Should an Insurance Deductible be a Reserve Item?

November 30th, 2014
Condo Buildings

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

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Maximize Reserve Fund Interest

October 31st, 2014
Reserve Fund Interest

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

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Reserve Study Frequently Asked Questions Part 7

September 30th, 2014
Pool Cabana

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

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What is the Purpose of a Reserve Study

August 29th, 2014
Reserve Study Purpose

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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How a Reserve Study Can Save Your Association Money

July 31st, 2014
Buildings

Reserve studies are beneficial to associations for several reasons. A reserve study helps an association get organized with its capital assets. A reserve study will have an itemized section for that shows projected asset repair and/or replacement year by year. This serves a meaningful purpose. If an association is not well organized, they may not know how much a reserve item will cost to replace or when it will be projected to be replaced. With a reserve study, however, the association has an effective tool

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Reserves for New Associations

June 30th, 2014
Condo Building Reserves

There is a lot of organization involved when setting up a new community. Budgeting for reserves is not necessarily the first thing that new boards may be concerned with. However, the opposite effect of not setting up reserves properly can have lingering effects. Money that is not set aside is an opportunity lost to fund for reserve items. Some of the long lasting items that are not easily conspicuous sometimes go unfunded. Communities that are responsible for bridges, storm water drainage, lift stations, pond deferred

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Reserve Study Frequently Asked Questions Part 6

May 31st, 2014
Lakehouse

What are some of the most typical reasons that a reserve study would require revisions? A reserve study can require revisions for a number of different reasons.  Some typical reasons may be that the reserve study had omitted a reserve item or certain group of items.  It is also possible that the reserve study included some items that the association may not want to fund.  In addition, the reserve analyst may not know the ownership of every item in the community–some associations lose responsibility and

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What Your Reserves Do

April 30th, 2014
What Reserves Do

Reserve funds are the backbone of community associations.  It is how they are able to pay for big ticket repairs and replacements.  Funding reserves is advantageous to your association for several reasons: Keeping property values up.  The biggest reason why you fund reserves is they help maintain and increase property values.  It is very difficult to sell a property when the community is in disrepair or a new owner will be inheriting a special assessment.  In condominium communities, FHA has to approve communities for their

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Identifying Reserve Items

March 31st, 2014
Shuffleboard

Identifying all of the reserve items in an association can be difficult.  One of the most common budgeting mistakes that associations make is not getting all of the proper items on the reserve schedule.  For condominiums in Florida, Florida Statutes 718.112(2)(f)2, says that reserves must be established for capital expenditures and deferred maintenance of: Roofing Painting Pavement Resurfacing Items having a deferred maintenance expense or replacement cost more than $10,000. It should be noted that co-operatives have basically the same reserve requirements in Florida Statutes

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Reserve Study Frequently Asked Questions Part 5 – Florida Specific

February 28th, 2014
Condominium

Do I have to have a reserve study for my association in Florida?   No.  There is no part of statues 718, 719, 720 (condominiums, co-operatives, home owner associations, respectively) that mandates that associations get a reserve study.  Not only do these associations not need a reserve study, but they can choose to waive funding of reserves with a majority vote.  Clearly this is not the recommended route, but some older associations have never collected reserve funds–they just always issue a special assessment.   If

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