Cohousing-L Mailing List: Re: reserve fund investments

[Sharon Villines (sharon]

> On Oct 26, 2016, at 12:17 PM, Alan O'Hashi via Cohousing-L <cohousing-l [at] 
> cohousing.org> wrote:
> 
> cohousers - there was a thread about replacement reserves. for communities 
> that have been around for a few years and have a few hundred thousand bucks 
> in reserves socked away, what are your investment practices?

Ours are in structured CDs so they can be cashed in at different times. Those 
with the longest maturity date earn more interest so we increased our return 
significantly. “Significant” being a relative term in practically zero interest 
times.

As Katie pointed out, we are theoretically losing money since interest rates 
are lower than the rise in construction costs. I say “theoretically” because it 
is a projection, and projections are not always correct. But consider the 
alternative — not putting money into reserve funds. I could put my share in the 
reserve fund or I could invest it myself and fund repairs through special 
assessments. I still wouldn’t have any more money. 

It isn’t a good idea to have a poorly funded reserves. Knowledgable buyers know 
that the value of the condo has to be measured against the reserve funds 
available. If I buy a condo with no reserves I will be facing a big increase in 
costs. The condo may end up costing me twice what another condo of the same 
price would. Realtors know which buildings have good reserves and which don’t. 
Since their sales are often from return buyers, they know that selling a 
well-funded condo comes back in future business and referrals. 

We have discussed having a portion of our funds, a conservative amount, that 
won’t be needed for 20-50 years in a higher earning investment but it hasn’t 
been followed up. It would take time to (1) research options, and (2) assure 
everyone that it would be safe and profitable.

What we did do was use Reserve Funds to install solar panels. It will take 4 
years to replace it, but we are saving $16,500 a year in electricity costs 
which will help replace the funds quickly. Because we were putting in the solar 
panels, we also replaced the roof. The roof was nearing the end of its useful 
life of 20 years. We replaced it with a roof that was much better has a useful 
life of 50 years.

So the best investment of reservers may be in how you use them. If we had been 
underfunded, we would not have been able to do these things.

One problem is that people don’t understand return on investments or interests 
vs inflation so they go with the least risky option: the one they have heard 
of. Many also think not spending money on maintenance and upgrades saves money. 
We’ve spent a lot of money on things that would not need replacing with better 
maintenance. And some replacements now, like the roof, will bring savings in 
the future.

Sharon
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Sharon Villines, Historic Takoma Park, Washington DC
TakomaTime, Your Neighborhood Timebank
Now on Hiatus <http://www.takomatime.org/>