Cohousing-L Mailing List: Re: Replacement Reserves Consultants

[MWorswick (MWorswick]

Kathleen,

At Harmony Village in Golden Colorado, we are going through our second round 
of reserve analysis budgeting.  After almost six years since move-in, we 
figured it was time for a "check-up".  We hired a different firm 
(specializing in only reserve studies) from the original (which was a 
property management consultant for apartments / townhomes).  The idea was to 
get a different perspective and see how their recommendations affected our 
budget numbers.  Both did a pretty good job, but varied a bit in their 
assumptions and reporting output (5 page report vs 50 pages!).  Based on what 
we learned and a few of the other coho-L responses, I'd like to make a few 
points:

1) Assign a subcommittee with a direct contact person to work with the 
consultant.  Let the subgroup meet with the consultant and digest the 
details.  Any full community meetings with the consultant for this kind of 
topic may be very cumbersome!  The committee can better present to, and get 
feedback from, the full group.  I agree with Casey that you want a consultant 
that PLANS ON RECEIVING FEEDBACK after their initial report AND MAKING 
ADJUSTMENTS TO THEIR FINAL REPORT (this was a stipulation of our agreement)

2) Pay very close attention to the assumptions about "rate of return", 
"inflation rate" and the amount of "cushion" (for example "cash flow model" 
or "fully funded model").  Over the periods of your reserve analysis (from 3 
to 30 years) THESE NUMBERS CAN MAKE A MUCH LARGER DIFFERENCE IN YOUR BUDGET 
than even large variations in you actual replacement cost estimates.  IN OUR 
CASE THE SECOND ESTIMATE DOUBLED THE REQUIRED RESERVE BUDGET, AND WOULD 
CREATE MUCH HIGHER DUES. 
     For example, in our case, although there were numerous variations in the 
individual replacement items and estimates, the total cost for all repairs 
and replacements were quite close between the two consultants.  However, one 
assumed a 6% rate of return and the other only 3%.  One also assumed a "fully 
funded" cushion (where there are tens of thousands of dollars in reserve, 
even in the worst spending case), while the other used a "cash flow" cushion 
(where the objective is only to never go below zero in the reserve account).  
These two assumptions alone made a 100% difference (double) between their 
recommended annual budgets.  

    The moral of the story is that it may make more sense for the community 
to focus on your investment strategy for your reserve account (bonds, CD's, 
equities?, etc rather  than a savings account) than it does to nitpick the 
component estimates (will the common house heating system need to be replaced 
in 15 years or 25?, for $3,000 or $5,000).  And this is coming from the guy 
who designed Harmony Village (me) who is totally into all the detailed 
component maintenance stuff (i.e. I'm not a financial advisor ;)   We have a 
subcommittee of savy investor types in our community that decides how to 
invest our reserve money based on a community guideline concerning risk & 
return.

3) Both of our consultants offered to give us a copy of their computer 
software, so that we could run our own modified estimates in the future.  
This is a great help if you get at least one person in the community who can 
understand and use it affectively for ongoing refinements of your budgets 
(like David mentioned). 

Best of Luck,

Matt Worswick
Designer & resident of Harmony Village, Golden, Colorado


>  -----Original Message-----
On Behalf Of Kathleen K. Groshong

>  Subject: [C-L]_Replacement Reserves Consultants
>  
>  
>  I was interested in the reference to consultants who make recommendations
>  re: replacement reserves schedules and costs.  Has any cohousing community
>  worked with a company they would recommend?  What did you learn from the
>  review?  Please include company contact info if you have a recommendation.
>  
>  Our replacement reserves schedule is a BIG part of our budget, which is 
also
>  increasing due to rising insurance costs.    Thanks for your help.
>  
>  Kathleen Groshong
>  Puget Ridge Cohousing
>  Seattle, WA
>  kkgrosh [at] attbi.com


>  Message: 10
>  Date: Thu, 24 Oct 2002 22:51:39 -0700
>  From: Casey Morrigan <cjmorr [at] pacbell.net>
>  Subject: RE: [C-L]_Replacement Reserves Consultants
>  To: cohousing-l [at] cohousing.org
>  Reply-To: cohousing-l [at] cohousing.org
>  
>  Kathleen:
>  
>  We recently had a reserves study done.  It came out o.k.  I learned a 
couple
>  of things.  We got bids from 4 firms and the range of prices was
>  unexpectedly broad (from about $1000 to about $1500.)  I called a couple of
>  the references, and the references were positive in all cases.  We tried to
>  find someone who'd worked with cohousing before, and couldn't. We ended up
>  going for the high bid cuz he seemed to have the most experience and seemed
>  easy to work with and returned calls/seemed to want the work.  Unlike
>  others.  It turns out that in this case, the "high-priced spread" was
>  probably not worth it, given the mediocre level of service we received.  In
>  the end, we got a report that seemed fine but the journey was a tad rocky.
>  
>  Anyway, we had to clarify up front what was different about cohousing than 
a
>  traditional condo that related to his task.  First, that there were some
>  items where labor costs needed to be excluded, because we expected to do it
>  ourselves.  We had a couple of non-traditional building materials that he
>  had to be educated about.  Also he was used to working with the hired
>  property/association manager, and so our contact person and the approval
>  process (approval of his draft report) seemed, I think, odd to him when I
>  described it.
>  
>  He came and spent a good chunk of time on site measuring the property and
>  documenting the physical condition of buildings - the on site visit was 
key,
>  of course.  I heard that not everyone does one, but I don't see how a legit
>  reserves study could be done without it.  In the end, he turned out not to
>  have good customer relations skills, and we needed some significant
>  corrections in the draft plan which I think took him aback.  He'd never sat
>  through a cohousing meeting and had no idea that people might be reading 
the
>  small print, heh heh!   I wish we'd just found someone who was nicer and
>  less defensive about his mistakes.  My goodness, I wondered, how do you
>  screen for that ahead of time?  None of his references mentioned it!  And 
as
>  usual, the issue wasn't how technically good he was or whether his
>  methodology was o.k., it was how he could handle differences of opinion and
>  do relationships.
>  
>  One other thing - we wanted someone with building trades experience to 
bring
>  us neutral yet informed information regarding replacement of some items.  
We
>  continue to have tensions in our community that are leftover from
>  construction times (which ended three years ago) about quality of original
>  work, replacement needs, improvement needs.  We made sure that the reserves
>  study guy did have that experience, and I think it was a plus in the study.
>  We wanted a planning tool that would tell us if our withholds were
>  sufficient, and we got it.  By ze way, he told us that our reserves needed 
a
>  small increase, which we obtained not by raising monthly assessments, but 
by
>  putting the reserves that had been sitting in a savings account into some
>  interest bearing CD's.
>  
>  Don't know if this helps.  Good luck.
>  
>  Casey Morrigan
>  Two Acre Wood
>  Sebastopol, California
>  

>  From: David Mandel <dlmandel [at] pacbell.net>
>  Subject: Re: [C-L]_Replacement Reserves Consultants

>  
>  However, you may want to do it yourself both to save money and to have more
>  input into the process, which would probably make it more accurate. We make
>  estimates on likely replacement costs and schedules for everything we can
>  think of, then use a spreadsheet designed by an ex-member to plug in 
various
>  scenarios as a basis for decision making on how much we need to put aside
>  each year and when necessary how much we have to raise our fees. Just went
>  through the process for the second time, a bit behind schedule.
>  David
>  Southside Park, Sacramento
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