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BernardH
(Virginia)

Posts:28

05/17/2008 10:07 AM
Our association has the current $ in its budget: $ 140.000 budget for the year (10% over what was spend last year) $ 58.000 in reserves + $ 425.000 in bank CDs The board has approved a 6,6% increase of fees last year to raise the reserves. I would appreciate if you could let me know what a reasonable reserves and CD is recommended (we are in Virginia). Regards.

MaryA1
(Arizona)

Posts:2505

05/17/2008 10:41 AM
Bernard, So you really have reserves set aside in the amount of $483,000 (58,000 + 425,000). I assume the $58,000 is deposited in a regular savings account? There is not way to determine what a "reasonable" reserve fund would be without knowing what your amenities are and whether you are in a condo or a planned community? But, just off the top of my head, $483,000 in reserves seems like an awful lot with only a budget of $140,000.

DonnaS
(Tennessee)

Posts:2951

05/17/2008 11:09 AM
Bernard, Below is from our Statutes. It will give you a general idea of how much your Reserve should contain. As Mary said, it all depends on what amenities and common elements the Association is responsible for. This is a "basic formula" on computing your Reserves. e) The amount to be reserved in any account established shall be computed by means of a formula that is based upon estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item. The association may adjust replacement reserve assessments annually to take into account any changes in estimates of cost or useful life of a reserve item. (g) Funding formulas for reserves authorized by this section shall be based on either a separate analysis of each of the required assets or a pooled analysis of two or more of the required assets. a. The total amount necessary, if any, to bring a negative component balance to zero. b. The total estimated deferred maintenance expense or estimated replacement cost of the reserve component less the estimated balance of the reserve component as of the beginning of the period for which the budget will be in effect. The remainder, if greater than zero, shall be divided by the estimated remaining useful life of the component. 2. If the association maintains a pooled account of two or more of the required reserve assets, the amount of the contribution to the pooled reserve account as disclosed on the proposed budget shall not be less than that required to ensure that the balance on hand at the beginning of the period for which the budget will go into effect plus the projected annual cash inflows over the remaining estimated useful life of all of the assets that make up the reserve pool are equal to or greater than the projected annual cash outflows over the remaining estimated useful lives of all of the assets that make up the reserve pool, based on the current reserve analysis. The projected annual cash inflows may include estimated earnings from investment of principal. The reserve funding formula shall not include any type of balloon payments. (

GlenL
(Ohio)

Posts:1470

05/17/2008 4:15 PM
Bernard get a professional reserve study done. It will tell you whether you have enough saved, too much or not enough. As far as the CD's go while they don't pay a lot of interest right now they are a "safe" investment (as long as you don't go over the FDIC limit at any one institution) and most CC&R's and / or state law limit the type of investing you can do with the money. For instance you can't take it to the track and bet "Big Brown" to win no matter what the possible return.

JohnM3
(Florida)

Posts:208

05/18/2008 5:35 AM
Find out what State Agency governs HOAs. Then send them an email for a written copy of the laws pertaining to HOAS Then sit with your Law Firm and hash it out. But never ever forget when setting up your reserves what you have insured and what is not insured. Keeping in mind that you can vote to go to a spend rather than acrue method of funding Reserves. Personally If I had reserves of over $485,000 dollars my members would lynch me up like a bandit.

MaryA1
(Arizona)

Posts:2505

05/18/2008 6:03 AM
John said: "Find out what State Agency governs HOAs." I say, good luck on that one!!! Why, many of the people posting here don't even have State laws, much less a state agency.

DonnaS
(Tennessee)

Posts:2951

05/18/2008 6:12 AM
Bernard, You just happen to be in luck because the State of Virginia does have some HOA laws on the books. Not many but some and they are under "CODE OF VIRGINIA" The Reserves statements are pasted below, FYI. § 55-514.1. Reserves for capital components. A. Except to the extent otherwise provided in the declaration and unless the declaration imposes more stringent requirements, the board of directors shall: 1. Conduct at least once every five years a study to determine the necessity and amount of reserves required to repair, replace and restore the capital components; 2. Review the results of that study at least annually to determine if reserves are sufficient; and 3. Make any adjustments the board of directors deems necessary to maintain reserves, as appropriate. B. To the extent that the reserve study conducted in accordance with this section indicates a need to budget for reserves, the association budget shall include, without limitation: 1. The current estimated replacement cost, estimated remaining life and estimated useful life of the capital components; 2. As of the beginning of the fiscal year for which the budget is prepared, the current amount of accumulated cash reserves set aside, to repair, replace or restore capital components and the amount of the expected contribution to the reserve fund for that year; and 3. A general statement describing the procedures used for the estimation and accumulation of cash reserves pursuant to this section and the extent to which the association is funding its reserve obligations consistent with the study currently in effect

PatrickH
(California)

Posts:197

05/18/2008 8:49 AM
Hi Bernard, Hopefully, your association has had Reserve Studies done so that they know how much they should have in the Reserves. The 480k you have so far may be low if the Board increased the dues 6.6% to increase the Reserve Funding. With the costs of building materials increasing faster than inflation, the costs in a Reserve Study need be be updated regularly. Let's say for example that the HOA has wooden fences around the property. The Reserve Study done in 2003 said that the fences should be replaced in 2010 at a cost of $ 50,000. A Reserve Study today may say the same job will cost 60,000 in 2010. If you're only funding that Reserve Item to have 50,000 by 2010, you'll come up short. Only an up to date Reserve Study can tell you how you're doing as far as funding the Reserves.

SusanW1
(Michigan)

Posts:2316

05/18/2008 4:29 PM
He have an annual budget of only $62,000. BUT - we have 12 bridges (over canals) and a water system to care for. In 2000, we put $250,000 in JUST repairing / replacing the top platforms on all the bridges and have an engineering study saying they are good for 20 years. Already it's been 8 years, and we have to have that $$ in Reserve for repairs when the time comes. That does NOT cover the wingwalls, landscaping and approachment costs. Our bylaws state that we have a Reserve Fund and that it is to be updated every 5 years, minimum.

DavidW5
(Virginia)

Posts:70

05/19/2008 8:40 AM
Posted By DonnaS on 05/18/2008 6:12 AM Bernard, You just happen to be in luck because the State of Virginia does have some HOA laws on the books. Not many but some and they are under "CODE OF VIRGINIA" The Reserves statements are pasted below, FYI. § 55-514.1. Reserves for capital components. A. Except to the extent otherwise provided in the declaration and unless the declaration imposes more stringent requirements, the board of directors shall: 1. Conduct at least once every five years a study to determine the necessity and amount of reserves required to repair, replace and restore the capital components; 2. Review the results of that study at least annually to determine if reserves are sufficient; and 3. Make any adjustments the board of directors deems necessary to maintain reserves, as appropriate. B. To the extent that the reserve study conducted in accordance with this section indicates a need to budget for reserves, the association budget shall include, without limitation: 1. The current estimated replacement cost, estimated remaining life and estimated useful life of the capital components; 2. As of the beginning of the fiscal year for which the budget is prepared, the current amount of accumulated cash reserves set aside, to repair, replace or restore capital components and the amount of the expected contribution to the reserve fund for that year; and 3. A general statement describing the procedures used for the estimation and accumulation of cash reserves pursuant to this section and the extent to which the association is funding its reserve obligations consistent with the study currently in effect Donna, Bernard did not say whether his association is an HOA or a condo association. You quoted from the Va. Property Owners Association Act (55-510 thru 55-516). Condos are governed by the Virginia Condominium Act (55-79). The reserve study requirements are similar in both. There is no state agency in Virginia that specifically regulates either type of association.

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