Cohousing-L Mailing List: Re: Reserves [was Rate of increase in HOA Dues?

[R Philip Dowds (rphilipdowds]

Sharon —

Can’t save enough looking only ten years ahead?  Let’s look at the numbers ...

For now we’re estimating that in the next ten years, we’ll be replacing major 
systems totaling appx $810,000 in current dollar construction costs.  Allowing 
for money already in the bank, and for inflation at 5% (too low?), and for a 
reasonable distribution of projects across the ten years (not all packed into 
the front or back end), household dues we must collect for the reserve alone 
average about $180 a month per unit in the first year, to $280 a month in the 
tenth year.  Small units pay less, and large units pay close to double.  Total 
reserve dues calculate out as about a 40% surcharge on top of our annual 
operating dues — or said another way, about 29% of the monthly dues total.

So is $180 to $280 a month “too much” for our community?  I don’t know, because 
we don’t do either income sharing or income information sharing.  For 
comparison, keep in mind that AAA estimates that the average American 
household, driving 1,250 a month miles in an average car, pays a total of about 
$1,040 monthly for the privilege.  Is that too much?  Yes, $280 here and $280 
there … and pretty soon you’re talking about real money.  But life is 
expensive, and maintenance is a part of it.

A *really* fully funded plan would collect all the money needed in one huge 
special assessment (millions of dollars) right now today, and then parcel it 
out over the years as replacement comes due.  In opposition, we’ve had members 
who’ve argued vigorously for the un-funded plan:  Collect nothing until the day 
before the roofer shows up, then pass the hat.  Obviously, all the plans you 
and I work on are compromises between these two equally preposterous extremes.  
No matter what funding, savings and investment scheme we choose, the reality is 
that if there’s $3mln worth of work in our community's future, then we have to 
find $3mln somehow.  Our special challenge is that some cohousers try to 
imagine that owning cohousing is cheaper than owning regular housing.  It’s not.

———————————
Thanks,
Philip Dowds
Cornerstone Cohousing
Cambridge, MA

> On Apr 8, 2025, at 12:54 PM, Sharon Villines <sharon [at] sharonvillines.com> 
> wrote:
> 
>> On Apr 7, 2025, at 3:12 PM, R Philip Dowds via Cohousing-L <cohousing-l [at] 
>> cohousing.org> wrote:
> 
>> (1) The “fully funded” reserve plan is no longer the gold standard for 
>> managing capital replacement financing.  In a world of unpredictable 
>> inflation, morphing technology and code requirements, debatable system life 
>> spans, erratic supply chain disruptions, and evolving community preferences 
>> and priorities, “fully funding” maintenance for three to five decades in 
>> advance is a fruitless activity.
>>     I will spare you the details of how we’ve been jiggering out 
>> calculations, but here’s the overview:  We look ahead only a decade, with 
>> special attention paid to those projects that probably ought to happen with 
>> the next three years; then we craft a collection program and savings 
>> strategy intended to make sure we have (more than) enough money for the 
>> entire ten year.  And afterwards (IMPORTANT!) we update the Plan every three 
>> years; that is, roll the ten year planning window forward every three years.
> 
> But how do you deal with costs that are 25 years out like replacing the roof? 
> I think Cornerstone is the same age as Takoma Village so those big ticket 
> items are coming up. Saving for this item in 3-10 years would be very 
> difficult.
> 
> For sometime, I think the acheivable standard has been closer to 70-80% of 
> the total estimated cost (based on useful life) required to repair and 
> replace reserve items. Even then the 70-80% varies with the items included. 
> Some reserve specialists advise putting everything in the reserve study. 
> Others use a threshold of itmes valued over $1,000, $10,000, etc., depending 
> on the size of the annual budget and the ability of residents to cover any 
> emergency expenses. Very wealthy communities prefer not to have funds sitting 
> in low-interest bearing accounts.
> 
> For communities with a resident architect or construction engineer, like 
> yours (and you) I think it may be possible to estimate more than communities 
> that don’t have that expertise inhouse. And those that have members who are 
> living paycheck to paycheck.
> 
> Sharon
> ----
> Sharon Villines
> Takoma Village Cohousing, Washington DC
> http://www.takomavillage.org
> 
> 
> 
>