Cohousing-L Mailing List: Re: Replacement reserves

[Sharon Villines (sharon]

On 4/9/04 10:14 AM, "Elizabeth Stevenson" <tamgoddess [at] comcast.net> wrote:

> Co-ops ARE groovier. The reason it's hard to get a bank to finance a co-op
> is that they don't make a profit for the homeowner.

This is actually not true of all coops. They are more like condos today than
most people think. You are still buying shares but, like the stock market,
those shares can go up or down.

On 4/8/04 5:37 PM, "Harriet Lewis" <hlewis [at] sonic.net> wrote:

> Our cooperative, Santa Rosa
> Creek Commons, has money in replacement reserves earmarked for
> replacement of individual apartment appliances, carpet & vinyl
> replacement, interior painting, etc.  In addition, of course, we have
> money there for major expenditures related to aging buildings such as
> asphalt repair and new roofs (20-30 years) . Does anyone else include
> items for interior units in replacement reserves?  At this cooperative,
> when a member leaves, the apartment ownership (share) reverts back to
> the co-op so maybe that is why we feel the need to have money available
> to replace aging appliances and floor coverings.

This is a unique situation. In this instance, it makes sense to save some to
refurbish units so you can sell them for more but then again, you can always
refurbish and add that cost to the sale of the shares.

I've been doing some research on reserves and there are two kinds of
reserves -- one for emergencies and one for replacement of items that one
can predict will need replacement. Reserves are kept for those items that
are held in "common interest" meaning they are owned commonly. If one owns
one's unit, as in a condo or most coops, one should be keeping ones own
reserves or savings to replace one's own stove or bathtub or floors.

Emergency reserves are to cover unexpected expenses that you might not be
insured for -- an owner doesn't pay condo fees, you budgeted badly for
plumbing costs, etc. 10-25% of your operating budget.

Replacement Reserves are to replace any elements held in common -- the
commonhouse and everything in it, the sidewalks, outdoor lighting, fences,
fountains, roofs, etc. Anything that is a common element and in many
instances, a limited common element.

The theory behind these reserves is that the costs of common-interest
elements should be paid over the life of the item, not just by those who
happen to be living there when it needs to be replaced. When people buy into
a condo, their lawyer should look at the reserves and be sure they are not
buying into a huge liability because the roof is about to go and there are
no funds to pay for it. Good reserve funds make selling condos much easier
because they are a testament to the sound financial judgment of the
enterprise.

Sharon
-- 
Sharon Villines
Takoma Village Cohousing, Washington DC
http://www.takomavillage.org