reserve funds/retrofit cohousing
From: Hungerford, David (dghungerforducdavis.edu)
Date: Mon, 15 Aug 94 16:19 CDT
Judy Baxter wrote:

>   We are working on setting up reserves for replacement costs, and
>looking for efficient ways to get expected useful life and replacement costs.
>So far we have considered asking contractors, a consultant on property
>management, and the service people who have been dealing with the elevator,
>furnace, plumbing, etc.  

>Any ideas on the relative merits of such sources (I know, this is stretching
>it) or better ideas will be welcome.  

This is something all groups, even those with new construction, need to 
understand.  Because we are set up legally as a condominium with extensive 
common facilities, the state Department of Real Estate calculated our monthly 
reserve contributions based on (who knows) some standard formulas they use.  
Many of us have since expressed some concern that the reserves may not be 
sufficient to cover future expenditures, and we have a "reserves study ad hoc 
committee" which is supposed to be looking into this.  As one of the members 
of this committee, I can tell you that we have stalled, mainly due to the 
great uncertainty about replacement/repair costs.  Our first cut, where we 
assumed complete replacement of things like sidewalks and site lighting in 
rough future years (e.g. tear out and replace sidewalks in 25 years) came out 
to be a huge monthly contribution per household.  Our major problem has been 
deciding which things last essentially forever, given routine maintenance, 
and which things that realistically will require replacement.  For instance, 
will we ever replace the kitchen cabinets?  Will we have to dig up, regrade, 
and rebuild our parking lots?  What assumptions do we make about inflation 
and rate of return on our reserve fund? (small changes in rates make large 
differences 30 years down the road).  Those of us working on this have expert 
skills in the mechanics of economic analysis (e.g. determining the present 
value of future costs etc.) but still get mired up in estimating which things 
we'll need to fix or replace.  
  
I'll throw in with Judy,  is there anybody out there who has had experience 
with this and can make suggestions?  I'd be happy to post present value 
equations and such if that would help anyone else.

David Hungerford
dghungerford [at] ucdavis.edu


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