HOA and Condo Reserves and Reserve Studies Explained

Are you a board member of a Homeowners Association (HOA) or Condo Community? Do you have questions about if you should have a reserve fund or how much you should have in reserves? Want to learn about reserve studies, timing, and costs? Watch our Ask an Expert Video where we ask these questions of Robert Nordlund, P.E., Founder of Association Reserves the Nationwide Reserve Study Company.
To Learn More about Association Reserves visit: www.ReserveStudy.com
The resource Robert mentioned: PlanIt was just offered as a benefit to our existing clients. In 2020 it will be a stand-alone offering. He has not completed the web page, marketing & training videos, etc.. We will have links for you when the marketing content has been completed.
He also said they offer a DIY Reserve Study Kit which can be found here: www.diyreservestudy.com. It is for clients that want to manage their own component list, but want someone to develop the funding plan and develop a finished "report". So it is complementary to our professional Reserve Study services.
If you like this content check out the resources page of our website for blogs, articles, sample documents and videos: communityfinancials.com/resou...
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[@alfonsopalomino4212]

Thank you so much it was very helpful.very important points to know

[@billligon4005]

Very good information. Thanks.

[@catherinebullock9748]

Do communities ever borrow money to make capital improvements? (Sprinkler system to reduce insurance expenses.

[@rick_h]

I live in an association in CA with 185 units. We installed roofs for $1.1 million in 2018. We had $200k left in the reserves at the end of project. $360k is being allocated to reserves each the year. The board has embarked on a remodel project that replaces outside wood paneling, shingles and trim with a composite material. Cost is $20k per unit. The board's plan is spend all reserves until 2024 and then go for a $2.5 million loan when only 45% of the complex has been completed. Any thoughts?

[@russellmunz5734]

Thank you for your question Rick. I asked Robert Nordlund for feedback: So all their numbers work out. No math errors. Their plan is do-able. My thoughts on the matter... "Your plan seems workable, and composite siding nowadays has a good reputation as a long-life product. But consider the drawbacks of your plan: 1) Getting a loan, when the Reserve balance is low, is not a "sure thing". 2) Subjecting the association to multiple years of ongoing construction is not a good thing, and over those years the material, costs, and contractor may all change (any of those three are bad). 3) The cost of paying back a $2.5M loan would be almost $40k/mo for 7 years ($3.36M total), or an additional $216/mo/owner over current budgeted assessments for 7 years So - there's no way around it. This will be expensive. It is better to get the project done more quickly (two -three yrs max). Interview bankers about the loan earlier (2021 or 2022), looking for options so owners who are able could pre-pay their portion (enjoying lower overall cost), and lowering the size of the loan the association would carry while at the same time providing some early cash to launch the project."

[@rick_h]

@@russellmunz5734 thanks for the reply! It gets worse. The board was recalled in September by a vote of 54 to 52 and four out the five board directors are running again this December. One was against the project because of the lack of funds. Our Articles of Incorporation state any loan over $100k must be approved by 2/3 of the membership. The recalled board will not allow a vote on a loan in 2021. If those in favor of the recall are elected to the board in December, we will need a property manager. The one we currently have has threatened to quit us if the recalled board is not re-elected. It looks like you have project management software online which I believe you sell to property management companies? It doesn't look like you have onsite property managers for service. Is that correct? For the DIY reserve study, can that replace hiring an outside company for reserve studies? I doubt that is the case. How would that prevent the board, or property manager, from tweaking the costs to something that is not reasonable?

[@russellmunz5734]

@@rick_h Hello Rick, my pleasure. We provide monthly accounting services plus also offer access to maintenance and violation tracking features built into the software we use - its not a construction project management software though. We don't have any onsite managers. What we have seen is a board separates the financial management from the physical management for greater checks and balances and focus on each. Then that local manager can login and use the software we use. For project management its better to hire a PROJECT manager not a property manager you can read more about that in this blog post: communityfinancials.com/does-your-hoa-or-condo-community-need-a-manager-for-capital-improvement-projects/ I would suggest given the climate of the owners and boards that your community hire a reserve specialist that is licensed to provide guidance on how much to put aside. Then no board or owner gets blamed if incorrect and you also get a third party to help mediate the personalities and explain things. If you hire a licensed professional they will do the right thing and not want to jeopardize their license status.