Cruisin’ for a Bruisin’ – Common Interest Communities

“Peak” years, for a common interest community, are those years when there are very large expenses that occur in a very short period of time. Typically this is due to having several components which make up the bulk of their common area expenditures. For most communities these very large expenses occur infrequently perhaps only every 20-30. Common examples of these are roofing, deck replacement and asphalt overlays all of which are infrequent but extremely costly common area components. The concern here is that many communities we work with have been cruising along in a poor to fair funding level for many years with no significant negative impacts. The community has… Read More

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National Reserve Study Standards – Four Funding Principles

When a professional reserve analyst develops a financial strategy for a common interest community (HOA, Condo, Cooperative) National Reserve Study Standards are taken into account. There are four basic principles in these standards: There are adequate reserves when needed The recommended financial strategy will take into account that some years will have dramatically higher expenses than others (often referred to as Peak or Threshold Years). The overall financial strategy should result in a reserve account balance which is large enough to cover expenses in all periods of time. There is little need for a reserve funding strategies which result in an Associations failure to meet its fiscal responsibility to the… Read More

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Life Isn’t Fair – But Funding Plans In A Reserve Study Should Be…

Fairness is a concept a reserve analyst must consider when developing a financial strategy for a community. It’s one of the basic concepts outlined in National Reserve Study Standards which was published by the well-respected Community Associations Institute in 1998 and is an extremely important consideration when providing the most tailored options(s) available to a community.  1. What is fairness? Fairness refers to adequately dispersing the reserve allocation expenses to the membership over time in an equal and stable fashion. This can be challenging as expenses occur irregularly and often seem to come due all at once in “Peak Years”; when several of the larger expense common areas meet the… Read More

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Functional Obsolescence – What is it and should we consider it in a Reserve Study?

Functional Obsolescence:is a reduction in the usefulness or desirability of an object because of an outdated design feature, usually one that cannot be easily changed. The term is commonly used in real estate, but has a wide application. Common interest communities, country clubs and private membership clubs of all sorts have common areas which are shared and utilized by the dues paying members and their guests. These common areas typically include recreation buildings, workout rooms, swimming pools, BBQ, areas all of which deteriorate with time and use. With respects to replacement reserve studies we are concerned with the adequate funding for these common areas over a long period of time… Read More

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Approval With FHA, Fannie Mae, Freddie Mac – The 10% Rule

In recent years lending institutions have become much more restrictive in approving and/or insuring loans for common interest communities. The FHA approval list has fallen by about 50% over the past 4-5 years. This has been due to a variety of reasons including new more restrictive reserve allocation requirements, owner occupancy standards and extensive documentation requirements. Impact on Market Appeal It has been our experience than many projects have seen declining marketability as financing options have dried up for Buyers. With rising real estate markets across the country this typically means the units in these community are seeing increases at a lower rate than units in communities which are approved… Read More

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Ways to Pay for Common Area Replacement Expenses

In completing reserve studies for HOA and Condominium Communities we are always reminding Boards and Community Members that common area expenses will occur whether the necessary funds have been set aside or not. The expenses in our reserve study reports are real and to ignore them or just kick the expenses down the road are both fiscally irresponsible and not in the best interest of the community as a whole. While the expenses will occur communities typically have one of several options in how they are paid for and not all are created equally. 1. Regular Assessment Dues – This is by far the cheapest and fairest to the current and future… Read More

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Paying the Piper – Special Assessment Reality

You’re a member of an Association which has a $200,000 roof replacement, a $20,000 swimming pool resurface, a $35,000 recreation building remodel and numerous other common area expenses that are expected to be incurred in the next 10-20 years. You as a member utilize these common areas every day and happily live the life of a condominium owner. This has worked out great for you and your neighboring community members. Life is good and you truly believe that this is the way to live as by splitting the cost between everyone, you are all able to be provided the luxuries that would be much too costly on your own. Moving… Read More

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Cost Estimates & Being too Optimistic in Reserve Studies

In reviewing prior reserve studies we often find that the cost figures of components are often too optimistic for adequate funding of the reserve account. Sometimes this is a reserve study professional who has changed these figures at the request of the Board but more often we have seen these figures being changed during update years when Board members update a study themselves, often utilizing costs figures taken from Internet searches which typically only provide partial cost data and are rarely accurate for multi-family and commercial construction. This can severely impact the short and long term funding objectives and place the community in a poor funding position with high risk… Read More

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Reserve Study Basics for Property Managers

For a property manager learning the ropes of their craft and how common interest communities operate the connected reserve study industry can seem confusing; we will go over the basics of reserve studies for common interest communities in this article. What a Reserve Study Is and What a Reserve Study is Not There is often confusion with Board Members and other Vendors as to what the reserve study is and what it is not. Below is a breakdown of what you should expect of a reserve study when ordering for any Association you are working with: A Reserve Study Is: A budgeting tool utilized by an Association for the long term… Read More

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Comparing Reserve Account Levels

Boards are often interested in how their Association’s reserve account balance is compared to other common interest communities (Condominiums, PUD, and HOA) in the area. Since each community has a unique common area component inventory just comparing the reserve account balances is not sufficient to compare communities for reserve fund strength. However there is a measure of reserve level adequacy known as “Percent Funded” which is provided in the reserve study which can be a good measure to compare communities with respects to funding levels.   Percent Funded Measurement   Percent funded is the measure of how much a community actually has in its reserve account versus how much it… Read More

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