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Subject: Small Small HOA - Reserve
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ChrisE6
(Utah)

Posts:1


10/28/2019 12:52 PM  
We have a small HOA of 7 houses and our only expenses are snow removal, weed killer, and every 5 years we resurface the road. We have $9600 in reserve, which I feel is too much.

After calculating everything I show that we have almost 4 years in reserve. How many years do would you suggest I have?
ND
(PA)

Posts:366


10/28/2019 1:10 PM  
I assume you mean you are re-sealing, not resurfacing, the roads every 5 years. To me that indicates you are responsible for road maintenance, repair, and eventual replacement. That is likely your big-ticket item that you are reserving for years down the road (pun intended). Figure out remaining useful life of your road. Then estimate cost of repairs over the years and then eventual milling and replacement at end of that remaining useful life. That will tell you how much you should have at some point in the future which will tell you how much you should be regularly saving. What may seem like a lot now will very quickly be gone when your road needs to be replaced to the tune of, let's say . . . $100k.
MarkM19
(Texas)

Posts:449


10/28/2019 1:48 PM  
Chris,
As ND has mentioned repairing or replacing roadways can be very expensive. It appears to me that this is really your only real reserve item unless you have failed to list other things. For that reason I probably would not think you need a full blown Reserve Study. I would get a few quotes from Road Maintenance companies in your area for future repairs and replacements. Your reserves should be planned so that when the needs arise the funds are in place with a decent buffer and it should continue to grow for the major event down the road.

I think your thinking about how many years that money may last may be flawed. Think of the near worst case and prepare your reserve for that and everyone will be much happier than knocking on doors expecting everyone to be able to write a check for an emergency repair.
TimB4
(Virginia)

Posts:16542


10/28/2019 2:48 PM  
Chris,

You should do a reserve study to determine how much to set aside each year.
For information on reserve studies (and links to sites on how to do your own), see the following thread on this forum:

Subject: Reserve Studies/Funds 101 Note earlier links in that thread may be broken but corrected later in the thread.


I also live in a self managed Association with private roads.
Road sealing and milling/paving is based on square yards.
Prices vary by area.
In our area, the quotes we have been receiving are around $14 per square yard.
Our reserve study is based on $16 per square yard in order to account for varying prices of oil.

Once you know how many square yards you have, contact local companies, explain that you are updating your reserve study and ask what their price is per square yard. Most companies are willing to assist.

Hope this helps,

Tim
TimB4
(Virginia)

Posts:16542


10/28/2019 2:49 PM  
Oh, to give an example:

Our line items under roads are:

Milling/Paving - every 15 years
Sealing - every 3-5 years
Line striping/curb painting - every 3 years

GenoS
(Florida)

Posts:3328


10/28/2019 3:00 PM  
Posted By ChrisE6 on 10/28/2019 12:52 PM
We have a small HOA of 7 houses and our only expenses are snow removal, weed killer, and every 5 years we resurface the road. We have $9600 in reserve, which I feel is too much.

Why do you think that is too much? Be specific.

Posted By ChrisE6 on 10/28/2019 12:52 PM
After calculating everything I show that we have almost 4 years in reserve. How many years do would you suggest I have?

There are industry-standard and widely accepted ways to analyze reserves. None of them produce a number of years as output.

You're small enough that getting a professional Reserve Study done should be relatively inexpensive. I think you should consider doing that instead of re-inventing the wheel. Or, you can find plenty of Reserve Studies online that have been done for other communities. You could study those and figure out how they were done, and then put together your own using the correct terminology and calculations. I'd still prefer a professional to do it the first time, however. Reserve studies have to be updated every few years.
BenA2
(Texas)

Posts:538


10/28/2019 5:53 PM  
Just to make sure we are on the same page, reserves is a term that usually means money set aside for infrequent big ticket items like replacing a roof and resurfacing a road, as opposed to savings for emergencies or years when expenses are higher than normal.

In a perfect world it's good to have a professional reserve study done, but for one item (the road resurfacing) I would do it yourself. It's not that difficult to figure out the approximate cost. If it's $10,000 you put away $2,000 every year so the money is there when you need it. It's your community and it doesn't sound like this is anything new to you.

To answer your question, best practices for HOAs dictate that you collect enough in annual assessments to cover your expenses; put away enough money for reserves; and have enough savings for emergencies and unusual expense. Some people think more is always better but it's not like a household where it's all your money. Members are paying for the four years of extra money which means they are paying more than is necessary. The bottom line is you should work to have a balanced budget.
GenoS
(Florida)

Posts:3328


10/28/2019 8:48 PM  
Roads can be problematic. There are different ways to resurface a road. Periodic sealing is a controversial topic for some people. Asphalt costs are hard to predict since it's tied very closely to the price of oil. An asphalt overlay can last anywhere between 15 to 25 years depending on the quality of the installation work and doing proper maintenance. If you ask questions about those things you'll get 10 different answers from 10 different people.

We've been carrying our roads in our reserves planning using a 25-year useful life. They were last done 12 years ago and starting to show alligator cracks in many areas. They were never sealed after the new asphalt was laid down. Some of us feel the lack of re-sealing every 5-6 years is shortening the life of the roads. Others think re-sealing is a waste of money and who wants to get that seal coating on their tires anyway?

We're planning to have a Reserve Study done next year and we'll rely on what the professional preparer tells us. They're supposed to be familiar with local practices, pricing trends. The Florida sun is brutal on asphalt and we'll carefully consider what the reserve study has to say regarding an estimated Remaining Useful Life. It's really the one reserve component we have very little clue about ourselves. I wouldn't trust anyone here to come up with a good plan and estimates. Heck, I wouldn't trust myself to do it.
NpS
(Pennsylvania)

Posts:3865


10/29/2019 12:21 AM  
In the study we had done this year, the reserve specialist planned for a 20 year useful life with a $17.75 per square yard estimate in today's dollars.

Because you may be looking out a dozen years or more into the future, your inflation estimate can affect the dollars you'll need dramatically.

As others have said, another big unknown is the cost of oil - to which the cost of asphalt is tied. An asphalt index is published monthly. All of the bids we received to mill and pave our streets were conditioned on the asphalt index being below a certain level. Above that level, the contractors got a premium to cover the additional materials cost.


Sikubali jukumu. Read all posts at your own risk.
SamE2
(New Jersey)

Posts:181


10/29/2019 12:38 PM  
Also make sure you don't have any other responsibilities for thing like street lighting, retaining ponds, retaining walls or anything else that does not need maintenance on a regular schedule but may need to be replace one day.
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