Re: Association Reserves questions
From: Oliveau (Oliveauaol.com)
Date: Wed, 17 May 2006 14:05:40 -0700 (PDT)
Hey Pat,
    Last year we raised our Catoctin Creek Village  HOA dues to account for 
Reserve Fund contributions.  My answers to your  questions are inserted below.
 
Hope this helps,
-Kevin Oliveau
 
In a message dated 5/17/2006 9:00:09 AM Eastern Standard Time,  
redtail [at] cablespeed.com writes:

- How do  we prepare the members for the big increase? We know many of the
"logical"  reasons for it, but I'm sure it's going to be an emotional
discussion. It  would help us to be able to show what percentage of the
annual budget other  Cohousing communities pay for reserves. If you're
willing to provide this  information, please also include number of units,
age of project, whether  urban or rural, and if you too are catching up with
previously under-funded  reserves.
We are a rural project of 18 homes, but only 9 of the 18 lots have been  sold 
thus far.  We decided to increase HOA dues to make the  necessary 
contributions to the Reserve Fund.  But we calculated  the amount as if all 18 
lots were 
sold.  That is, everyone paid 1/18th  of the necessary Reserve payments.  
Given that we really only have 9  households contributing, that means we are 
only 
making half the necessary  contributions.  Fortunately, we also had some other 
funds  which we transferred to the Reserve fund.  That put us  about 18 
months ahead to begin with.  The rationale is that as we sell  the remaining 9 
lots, the Capital Reserve contributions will come up to the  correct level.  
The 
hope is that the initial contribution will keep us  from falling behind until 
we sell that 18th lot.
 
People were not happy about the dues increase, but I think it helped that  we 
explained in detail what the Reserve Fund was for and we presented a detailed 
 list of items to-be-replaced.  I also told a story about another HOA I  
lived in which didn't have any reserve funds and ended up tripling dues with a  
special assesment when the pool and they playgrounds all needed  to be replaced 
in the same year.  The response seemed to be, "let's look at  the rest of the 
budget to see if there's other areas where we can save  money."



- We have a long list of potential reserves components, around  60. Should
we itemize the smaller things in our reserves study, which  requires effort
to estimate life and replacement costs for each of them, or  should we
instead lump them in a 'general' reserves category to cover  the
(unspecified) small stuff (and gradually increase the funding over time  to
match inflation)? Or should we just handle this via 'general  maintenance' in
our annual operating budget?

I wouldn't put in things like vacuum cleaners.  But I would put in  bathroom 
cabinets, plumbing fixtures, exterior doors and windows, mirrors,  mowers, and 
appliances.  Some of this stuff is may seem small, but when you  add it all 
up, and it's usually a lot more that you would have guessed.   You should also 
budget for General Maintenance, but that's different from  the Reserve fund.  
General Maintenance is painting the fence when it needs  it.  The Reserve Fund 
is there to pay for a new fence when the old  one collapses into a heap.
 
Your Reserve Fund should make assumptions about what inflation will be, and  
what kind of interest you can earn.  A spreahsheet is very helpful for  doing 
all the calculations.  Those numbers will have a big impact on the  amount you 
need to contribute each month.  Also, if you don't actually put  the reserve 
funds into an interest-bearing account, you'll have to increase  your 
contributions accordingly.

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