Archive for the ‘Blog’ Category

Why Should a Special Assessment Be a Last Resort?

April 30th, 2015
Special Assessments

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

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What Should Be in the Reserve Schedule?

March 31st, 2015
Reserve Schedule

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

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Reserve Study Frequently Asked Questions Part 8

January 30th, 2015
Adobe Buildings

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

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Why Some Associations Hesitate to Get a Reserve Study

December 30th, 2014
Rainbow Row - Charleston

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

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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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