Re: Reserves funding levels/percentages?
From: Sharon Villines (sharonsharonvillines.com)
Date: Wed, 7 May 2025 10:35:00 -0700 (PDT)
> On May 7, 2025, at 10:43 AM, Gary Hellenga <gary.hellenga [at] gmail.com> 
> wrote:
> 
> In early April, there were a number of postings related to "Rate of
> Increase in HOA dues".  Several responses discussed their community's
> policy to achieve 70%, or 30%, of funding; 70 or 30 percent of what?  Where
> can I find more on this idea of hitting a specified percentage of funding?

It might be one very small mention in the beginning of the report before the 
schedule of payments. That schedule is based on an assumption — how well funded 
will you be if you follow that schedule. 

In addition to the explanation from Kelly Bachman, from reading the 
ReserveStudy.com <http://reservestudy.com/> website and other sources for many 
years. The advice for determining the appropriate percentage interest for a 
particular community is based on a variety of things. Factors that communities 
— not just cohousing — have used:

1. The available wealth of members of the community. Communities of people with 
high levels of personal wealth may fund their Reserves at a lower level than 
communitiies of people who do not have personal reserves, who live paycheck to 
paycheck. The more fully funded your reserves are, the greater your ability to 
be sustainable with a wider range of income levels.

People with personal wealth can more easily cover any emergencies if the 
Reserves are too low when a hurricane destroys the new roof. Most cohousing 
communities, particularly for the first 10 years, have significant numbers of 
people who are already stretched thin and can’t produce thousands of dollars 
when the Reserves are inadequate. Wealthy and older financially stronger 
community members may prefer to maintain low reserves and risk special 
assessments becuase they can earn more interest than the conservative sources 
Reserves are invested in.

2. Is the operating budget large enough to cover some unexpected expenses?  A 
large community, for example, is more likely to have cushions built in that can 
be used for emergencies. Items that are optional and easily delayed or other 
reserves that can be used. A 10-20% contingency fund, for example, that can be 
used for more things than the Capital Reserve fund.

3. The level of funding that has been shown to be adequate without endangering 
capital values by delaying maintenance or replacement. ReserveStudy.com 
<http://reservestudy.com/> does studies for so many communities that it 
maiintains data based on real life experiences that are predictive of 
sustainabilty when funded at a lower rate than 100%. The number I remember is 
that at 40% funded communities are in trouble. They are most likely to be 
delaying maintenance and replacement that is necessary for long terms 
sustainabilty.

4. From entirely different economic situations, having adequate reserves, “cash 
on hand”, is what allows investors not only to protect themselves from 
emergencies but to take advantage of opportunities that might arise 
unexpectedly. For example, when it became optimal to install solar panels we 
were able to do it by borrowing partly from our almost 20-year-old Reserves. 

5. Local dangers and opportunities. In hurricane, tornado, flood, sink hole, or 
termite danger or not. Using elbow grease to replace sidewalks  with pervious 
pavers over time.

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




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