Re: Operating budget
From: Sharon Villines (
Date: Fri, 8 May 2015 11:38:10 -0700 (PDT)
> On May 8, 2015, at 11:27 AM, Willow Murphy <willowm7 [at]> wrote:
> Do you
> strictly follow your reserve study recommendations or use this as a guide
> and make decisions based on your community's particular needs each year?

(I’m doing a presentation at the cohousing conference on reserves so this is 
probably more than you wanted to know but here it is anyway.)

At Takoma Village we get as close as we can to reserve study requirements and 
have healthy reserves. About 25% of our monthly condo fee goes to reserves. 

We are one building that includes the CH, apartments, and townhouses. The 
reserves include everything except the interiors of units. We do formal reserve 
studies every 3-5 years and have a conservative but not rigidly conservative 
reserve study team. We’ve done studies sometimes for 30 and sometimes 100 years.


You had no idea that there were philosophies of reserve studies but there are. 
The two polar opposites, exaggerated to emphasize the differences, are:

1. Long term comprehensive reserve studies

Projected expenses over 50-100 years for all physical elements — electrical 
wiring, sewage pipes, sump pumps, furniture, landscaping, all plumbing, HVAC 
duct work, etc. Everything that will at some point need to be replaced and 
upgraded to the future standards. The largest replacements occur at 50 years, 
and “50” is an estimate. Some will be done earlier and some later. Projecting 
out over 100 years doesn’t make much more difference because it includes 
repeated replacement of the same items. But it does show the expected rate of 
inflation in construction costs which can be scary.

2. Short term just adequate reserve studies

Projected expenses for 20-30 years for only those items likely to need to be 
replaced in any one year. It only protects against what might go wrong in the 
short term, not against a possible or a probable long term scenario. But it 
means you are only saving for 50 year items for 20-30 years, not 50.

For example, we have 12 sump pumps:

1. The long term comprehensive study would include all 12 and project the 
replacement of all of them every 5 years multiple times over the period of the 

2. The short term just-adequate study would include the number of sump pumps 
that might need to be replaced in any given year — 7.


The first reserve study and the 5-year study include onsite analysis of current 
conditions. Large condominiums, my aunt the commercial realtor says, do full 
onsite updates every 3 years because the amounts and risks are so much greater.

The 3-year update is often a financial recalculation based on actual amounts 
deposited and withdrawn. 


The primary purpose of the reserve study is to ensure the community’s ability 
to replace and upgrade to future standards. You won’t be able to sell 
deteriorating or antiquated units very easily, and not at market rates. 

If the current reserve deposits are too low, future owners will have to pay for 
things that are being used by current owners. If you move into a condominium 
for which the previous owner has not saved anything to replace the roof, and 
hurricane Harvey comes along or mold sets in, you will be hit with a large 
assessment right off the bat.

While most potential cohousing owners don’t know how to evaluate reserves, and 
their lawyers often don’t either, and they don’t use realtors, they won’t 
understand whether reserves are adequate or inadequate. But when I lived in NY 
City, some realtors would not recommend purchasing in some wonderful buildings 
because they had no or insufficient reserves. These buildings did repairs and 
replacements by assessing the owners at the time of the expense. That means 
only people with very large incomes and many assets could take the risk of 
living there.

When my daughter bought a condo in NYC, she had an assessment two months later 
of $600-900 a month for the next 3-6 months. I forget the exact numbers but I 
was shocked. Her lawyer had just told her the reserves were perfectly adequate. 
The building is occupied by people who have been there 50 years and are selling 
to younger people. The long-term residents had no interest in saving for 
replacements they would not benefit from. And the young people had no 
experience to compare it with. My daughter’s lawyer was making comparisons in a 
very high income market.

The same problems with in-adequate reserves will eventually catch up to 
cohousing communities that are not following best practices in financial 

If keeping housing affordable important, under-saving is not the way to do it. 
Most cohousers don’t have $10,000 laying around for an un-budgeted expense.


I favor both long-term and comprehensive studies. A comprehensive study has 
information beyond the projection of future costs. It can be used for managing 
the property. It will list the number of SF of sidewalks so you can determine 
the costs of replacing with concrete or permeable pavers, and the year by which 
you need to make a decision. It is  useful for determining operating budget 
projections, cost comparisons, understanding what is in your building that you 
need to pay attention to, etc. The size of HVAC units. It can be used to 
estimate the relative costs of replacing with wood or Trex. 

Yes, you can get professional estimates done but in early planning having these 
figures can be very useful. They are also useful in telephone consultations 
with professionals. We have often gotten cost estimates this way without the 
trouble of arranging onsite visits.

You can use a detailed reserve study to determine if you are being overcharged 
for an emergency replacement of a sewage ejector pump when it is costing you 
$200-$400 an hour for the workers to sit there while you decide what to do. 

One of our 50-year items is the Hardy Plank siding which is projected to cost 
~$400,000 to replace. Saving for 30 years it will require saving ~$13,000 a 
year. Saving over 50 years, $8,000 a year. For some communities that may not 
make a difference but for others it will.

Because our roof is deteriorating faster than the projected 25 years and we 
want to install solar panels, it is cost effective to replace our roof after 
only 15 years. It will cost $100,000.  We have been saving ~$5000 a year for 
the roof. If we didn’t have adequate reserves for other items, we would have an 
additional assessment this year of $25,000 or an average of ~$600 per unit. 
Large units would pay significantly more.

And unexpected expense of ~$600+ in one year doesn’t sound like much to many 
people but on top of our 6.5% increase in monthly dues this year, it would be a 
hardship. (Most of the dues increase is for utilities, insurance, etc., that 
are not under our control and not optional.) We have had three households 
without jobs for several months this year, one for more than a year. Since the 
recession, others have been under-employed for years. Some new residents are 
recovering from moving costs and others from new babies and unpaid parental 

Because we save almost as much as our study recommends for a detailed list of 
items, we have the funds to do the roof replacement now and take advantage of 
energy rebates without making additional assessments or taking out loans. 
Because we are upgrading to solar, the catch-up payments to the reserves will 
come from savings in utility bills, projected to be $13,000 a year. Our 
well-maintained reserves allow us to benefit in future savings.


The person who has done our long-term comprehensive studies, is an 
architectural consultant specializing in sustainable construction and design, 
and he was on the CAI panel that set their reserve standards. He says the 
reasoning behind short term studies is based on commercial housing. Rental and 
hotel properties normally expect to completely rehabilitate and refinance in 
20-30 years. Some will even build to tear down in 20-30 years. 

Saving for 20-30 years makes sense to commercial properties because they are 
financed differently. And most reserve studies are done for large condominiums 
or commercial properties like hotels and other short term or seasonal 
residences. The Property Management Association considers 400 condos to be 

Just adequate studies are often done to protect the liability of the board. If 
the board has not maintained adequate reserves, it can be held accountable, as 
in taken to court, by residents for mismanagement. When presenting financial 
documents to new buyers who understand the need for funding the reserves, it is 
an immediate alert when the reserve study requirements exceed the amounts in 
the reserve fund. Thus it is beneficial to boards to have a reserve study that 
requires only the minimum. 

Cohousing is more like single family homes. Owners want them maintained so they 
will last “forever”. The intention is very different, and thus the financing is 
different. Thus long-term studies better suit the purposes.

Sharon Villines
Takoma Village Cohousing, Washington DC

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