Re: Saving up for a capital expense
From: Peter Orbeton (
Date: Fri, 6 Nov 2020 11:11:56 -0800 (PST)
Hi - I served as the Treasurer at Nubanusit Neighborhood & Farm for seven
years, and remain on the Finance Team. We are self-managed. Although a
co-housing community, we are subject to the NH state condo act. Here's my

Get and keep up to date a Reserve Analysis (aka Long Term Reserves - LTR).
Our consultant recommended picking a low dollar threshold (we chose $2000)
below which capital items like a washer, etc. are not included. Use your
operating reserve funds to replace those items. Also, LTR's should only be
used for its component items. Although a component item has an expected
life-time, don't feel compelled to replace the item at the end of its
expected life-time if it doesn't really need to be. Just let the funds
remain in LTR. At some point, that item will wear out. And when you update
your Reserve Analysis, let your consultant know and the clock will be reset
so to speak.

Specify an operating reserves amount annually in your budget. We, for
example, had to raise ours recently when we had to switch insurers and the
deductible went from $2500 to $10K (ouch). Pick a reasonable amount
otherwise the IRS may take a dim view - you shouldn't be accumulating funds
that do not benefit recent or current owners. A web search turns up a
range. For 2021 NN&F's will be about 15%.

For a known upcoming capital expense (for example, a new front walk to our
Common House), we funded it over two years; max has been three. The funds
were rolled over to the next year. Yes, it may make your operating reserves
account have a bit more in it, but don't over do it. Bigger ticket items
(we purchased a new farm tractor a year ago) should be funded by a special

Familiarize yourself and others with IRS regulations. The IRS is quite
strict about LTR funds and excess member contributions. For example,
directing excess member contributions to the LTR account is a no-no. Our
attorney has also advised us to have the unit owners pass an Revenue Ruling

Finally, consider what we refer to as our "for good cause" provision in
your bylaws. Our attorney suggested it as a layer of protection from owners
feeling a budget item (and their dues) may not benefit them. For example,
we have a small pond, used for swimming and ice skating. We periodically
replenish the beach sand. Not all owners use the pond. The provision is
quite simple - "Such budget, for good cause, may also grant concessions on
common area expenses or direct dues that may benefit less than all units as
may be recommended by Plenary and ratified by the UOA through the budget
approval process."

Hope this is helpful.

Thanks, Peter

On Fri, Nov 6, 2020 at 8:09 AM Ann Zabaldo <zabaldo [at]> wrote:

> Jerry is right in what he wrote.  Your reserve funds should cover capital
> expenditures.  Homeowners pay into the reserve funds every month through
> their HoA dues.
> BUT … I perceive something else in your email:
> > Our treasurer, who is experienced with budgets in business, says we
> can't carry funds over from one year to the next (except for the reserve
> fund).
> So, at TVC and probably a zillion other condos (we are organized as a
> Condo but this also applies to HoAs, coops and other multi-family
> developments) leftover funds are swept into a Members Equity fund.  This is
> specified in our by-laws.  If a lawyer familiar w/ Multi family housing
> drew up your by laws they would have very likely included this in your
> documents.  Unused funds are not lost funds.
> The Members Equity fund is a little bit like a savings account.  When we
> have overspent our budget which has been RARE we can cover expenses via
> this fund.  After 20 years we now have $80,000 in the fund so we are at the
> point of deciding what goes into Reserves, how much do we keep in the
> “savings account” and what other ways are there to distribute the funds
> e.g. back to members?  The point is … you CAN carry over money from year to
> year in a fund like this.  And … according to the companies who have done
> our reserve study every 5 years we have to have some cash in a fund to
> cover unexpected expenses that do not fall under reserves.
> If your bookkeeper says you cannot carry over funds what does she suggests
> happens to the leftover funds?
> Personally, I would like half the TVC Members Equity fund to build an
> underground swimming pool …  Maybe it would take all of it …  :-)
> Best --
> Ann Zabaldo
> Takoma Village Cohousing
> Washington, DC
> Member, Board of Directors
> Mid Atlantic Cohousing
> Principal, Cohousing Collaborative, LLC
> Falls Church, VA
> 202.546.4654
> It may be that when we no longer know what to do,
> we have come to our real work
> and when we no longer know which way to go,
> we have begun our real journey.
> The mind that is not baffled is not employed.
> The impeded stream is the one that sings.
> –Wendell Berry, “Our Real Work”
> NOTE: Please add my new email address to your CONTACTS list.   I’m
> transitioning to this new email address.  Please start using
> annzabaldo [at]
> > On Nov 4, 2020, at 4:49 PM, Linda Hobbet <coho [at]> wrote:
> >
> > Hi,
> >
> > We are working on our first annual HOA budget. Our treasurer, who is
> experienced with budgets in business, says we can't carry funds over from
> one year to the next (except for the reserve fund). So how can we save up
> for a capital improvement that is more expensive than we can collect in one
> year? Is there a way other communities handle this?
> >
> > Thank you,
> > Linda
> >
> > --
> >
> > 706-202-7278
> > coho [at]
> >
> > _________________________________________________________________
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> >
> >
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