8 Sep 2011

Reserve Budget in a Nutshell

Posted by Orlando HOA Services

Your Reserve Budget will have a great deal to do with your Reserve Study. So what is a Reserve Study?

A Reserve Study lists all of the common property components of your Homeowner Association, estimate remaining useful life, and replacement cost. Your board has the legal right to do their own Reserve Study, but I would not recommend it. There are good Reserve Study companies out there with reasonable prices. Your Reserve Study will include a recommended minimum monthly contribution to the Reserve Fund. It is an extremely useful tool, but your Board also has the challenge of balancing what your Reserve Study says you need to do and what is practical.

For instance: Reserve Study companies are extremely risk averse and will mostly want to quote full replacement costs. However, how many neighborhoods do you know completely jackhammer their sidewalks and replace them every 25 years? I don’t know any. Still, over the years you will find that sections need to be replaced do to errant tree roots, or cracks need to be repaired. One of my clients decided, instead of budgeting $120,000 to replace their sidewalks and driveways 10 years from now, they budgeted $10,000 ($1,000 per year) for repairs. That doesn’t mean you have to spend that money, it shows that you have put it aside in case you need it. In other words, you are showing fiduciary responsibility without putting an undo financial burden on your owners. Be judicious. You want to make sure there is enough money for repairs, but in this economy you also want to make sure your owners can afford their monthly assessments.

By the way, I found a neat little tool to help your Board play with the numbers so you can look at different outcomes. It’s a piece of Software called Lucid Reserve Study Standard. (http://www.lucidcc.com/ReserveStd.php) Most Reserve Study software will cost you in the thousands of dollars. This software isĀ under $80.00 and works very well in estimating future costs and savings. I love it.

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