Cohousing-L Mailing List: Re: Association Reserves questions

[Sharon Villines (sharon]

On May 16, 2006, at 9:08 PM, Pat Little wrote:

>  - How do we prepare the members for the big increase? We know many of 
> the
> "logical" reasons for it, but I'm sure it's going to be an emotional
> discussion. It would help us to be able to show what percentage of the
> annual budget other Cohousing communities pay for reserves. If you're
> willing to provide this information, please also include number of 
> units,
> age of project, whether urban or rural, and if you too are catching up 
> with
> previously under-funded reserves.

Firstly, all communities should join the Communities Association 
Institute for at least a few years and read everything they publish in 
managing shared real estate. I know it is painful because they use the 
standard legalistic definitions of "Boards run communities" but they 
have a wealth of information there that can help communities avoid this 
kind of financial speed bump. We went through this as well.

The CAI has a study on Best Practices Developer Transitions that 
suggests that the reserve study should be stared DURING CONSTRUCTION  
and should be done with a MAINTENANCE STUDY along with the ENGINEERING 
STUDY. Do not skip any of these things. If we had had these things done 
it would have saved us much grief and much money.

I'm not in favor of trying to figure out the best way to tell community 
members things. Tell it straight and give them figures. They are as 
responsible as you are for this information. It doesn't get easier. Our 
Board did not listen to our management company who said right off the 
bat that we needed to triple our condo fees -- what does he know, we're 
cohousing!. Eventually we go it done but ti wasn't any easier and we 
looked more incompetent that we needed to look and the agony stretched 
over several years. Bite the bullet and make the decision. You can 
still phase the increase in but lay the figures on the table.

Percentages in comparison with other communities is probably not 
helpful because reserves are for the common elements and these vary 
widely. Lot development models with mountain trails are very different 
from urban multi-household dwellings sitting on 1.5 acres of land.

>  - We have a long list of potential reserves components, around 60. 
> Should
> we itemize the smaller things in our reserves study, which requires 
> effort
> to estimate life and replacement costs for each of them, or should we
> instead lump them in a 'general' reserves category to cover the
> (unspecified) small stuff (and gradually increase the funding over 
> time to
> match inflation)? Or should we just handle this via 'general 
> maintenance' in
> our annual operating budget?

Why not hire a professional? It is very complicated to estimate lives 
of things and future replacement costs and interest rates, etc. 
Specialists do this everyday and keep up to date on these things. 
Studies should be repeated every 3-5 years because costs change and 
technology changes.

On the other hand you can purchase software to do these calculations. 
If you have people in your community who KNOW about mechanical, 
architectural, and electrical systems, you could attempt to do this and 
thus use the software to continually update your reserve needs. But 
these require a lot of knowledge.

> And a more technical bookkeeping question - we are wondering how to 
> track
> the reserves funds in our bookkeeping system. Most of the accumulated
> reserves will be in a separate savings account, requiring 2 signatures 
> for
> withdrawals, but collections from the current year will be in the 
> checking
> account for some time before they get transferred to savings. We'd 
> like to
> have a way to show, in the books, the total accumulated reserves 
> regardless
> of which account they are in. We use QuickBooks. Does anyone have 
> experience
> with this, and could tell us what you did?

Reserve Funds must, by law, be kept in separate accounts that are 
essentially no-risk -- insured bank accounts or government bonds. You 
should consult your lawyer and CPA on this. Communities can keep their 
own accounts but having a CPA set them up will ensure that your are 
doing this properly.

For the protection of your community, consult professionals. Even if 
you have an inhouse professional, get outside professional advice to 
protect your association from legal action. We have had problems even 
when consulting professionals but not half as big as when we didn't.

I don't know the value of your real estate but at Takoma Village we are 
managing -- conservative estimate -- $25 million dollars in residential 
real estate. That may be small potatoes to the Donald Trumps of the 
world, but it is a lot of money and I'm sure the total value of other 
communities is the same. That also represents a substantial portion (if 
not all) of the life savings of all 43 households. Get professional 
advice.

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