Cohousing-L Mailing List: Re: Reserve Studies

[Sharon Villines (sharon]

On 29 Dec 2011, at 12:03 PM, Douglas G. Larson wrote:

An excellent post on reserves. Just some additions.

> Reserves are funds set aside by a Homeowner's Association to be prepared for
> the eventual replacement of assets. Those assets are very broad and can be
> big ticket items like roofs, driveways or painting (both interior and
> exterior) but can also be smaller items like fences, landscaping, decks,
> common house dishwashers, ovens or refrigerators.

Our specialist says that painting specifically cannot be included. The IRS goes 
nuts over it. They call it maintenance.

So we have a maintenance reserve as well. Anything that is done every year is 
in the operating budget — every two years or more, in the maintenance reserve. 
I have a spreadsheet of these items, constructed from the Reserve Study.

> There generally is a lower
> dollar limit below which an asset is NOT included in the reserve study.
> Hence things like toasters, coffee makers, food processors are generally not
> included. The professional Reserve Study organization can guide you on where
> that dollar limit is. 

Ours is $500 because anything below that we can find money for in the operating 
budget. 

> A Reserve Study, is a study done by professional organization that has
> experience with and knowledge of Homeowner's Associations financial standing
> as well as experience with the expected life of common capital assets, like
> those I mentioned above.

It is important that this person be an architect or construction engineer who 
knows facilities, not just a financial person who uses the Means reports to get 
average prices. The person needs to know your facilities and how you maintain 
them to make judgements about how long they will last or if intermediate 
replacements or repairs will extend the life of the asset. If repairs will 
extend the life of the asset, they can still be included in the Reserves. Many 
things will never be replaced all at the same time.

Walk around with this person and ask questions. Take notes. Put the video 
camera away — when you want to find out what he told you to use to seal the 
fence, you don't want to watch a two hour video to find out.

People who love construction, love to talk about it. They will give you tons of 
information about your facility and materials and mistakes and remedies that 
will never get written into the Reserve Study. The Reserve Study is the best 
thing you can do for managing your facilities. It's worth every penny if you 
have a knowledgable person doing it.

> sure if follow-up studies require a site visit since our community hasn't
> had its first follow-up yet.

The 3 year study should. Annual financial calculations don't.

> The purpose of the Reserve Study is so that you have some sound basis for 
>  a) The expected life-span of each asset
>  b) That you are collecting adequate funds to cover each asset replacement
> in the year expected.
>  C) A schedule of how much to collect each year overall and from each
> owner.

These are the traditional uses of the reserve study. I would add one more — a 
tool for managing your facilities. Just the estimates of replacement costs and 
useful life, and the consultation with the person doing the study would be 
worth the cost. When our sewage ejector pump went out and we had to have it 
fixed before some units could use any water, we could consult our study to see 
that the cost the company was going to charge us for new pumps was standard and 
predictable. It allowed us to make a quick decision without anxiety.

Get a study done if you haven't already. If you have one, look at it. Get it 
into a format you can consult easily.

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