Re: Reserve Studies
From: Brian Bartholomew (bbstat.ufl.edu)
Date: Sun, 6 Aug 2006 23:13:30 -0700 (PDT)
> However, $1 saved today in an interest-bearing account that matches
> the 4% inflation rate will be $2.19 20 years from now.  Assuming a
> constant rate of savings, one would have monies for more than the
> half the roof.  So it is a bit more complicated.

I made a bunch of simplifying assumptions: the money actually goes in
evenly over time, not all at once at the beginning; the compounding is
not yearly; and the monetary inflation rate changes.  However, the
"big knob" that controls the performance of the savings is the
monetary inflation rate, and I don't think it will be as low as 4%.
The data from the Fed itself claims it went as high as 13.9% over the
timespan 1/4/06 -> 3/1/06.

> Eno Commons has its HOA reserves with Self-Help (www.self-help.org)
> earning a little above the current rate of inflation.

It's reasonable to expect an investment can earn 4% a year, each year
for 20 years.  I'm really rusty, but isn't the long-term stock average
something like 12%, not counting inflation?  Which makes the real rate
about 7-8%?  What happens to the reserve if inflation goes over 7% to
create the appearance of paying out social security for baby boomers?

Which makes me wonder: if long-term savings or investments denominated
in an inflationary currency are troublesome, are there other ways to
keep the buildings intact besides putting aside money?  Can you
replace one roof on a unit each year, thereby giving up a lot of roof
lifespan in exchange for them not all going bad at once?  Can you use
thicker roof metal so it will last for 75 years instead of 20?  Can
you clean and paint it each year and never replace it?  In general, is
there some way to spend that HOA reserve immediately on maintenance
rather than trying to save it and maybe not succeeding?  I've read
that continual gentle maintenance is better for buildings, anyway.

                                                        Brian

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