Get 1 year of free community web site hosting from Community123.com!
Monday, December 06, 2021











HOATalk is a free service of Community123.com:

Easy to use website tools to help your board
Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.
Subject: Reserved
Prev Next
Please login to post a reply (click Member Login on the menu).
Author Messages
JillS8
(California)

Posts:101


05/26/2021 5:53 AM  
What does the board do when our reserves are 100% funded? Do we decrease our monthly dues? Just curious on any ideas.
JohnT38
(South Carolina)

Posts:794


05/26/2021 6:08 AM  
Posted By JillS8 on 05/26/2021 5:53 AM
What does the board do when our reserves are 100% funded? Do we decrease our monthly dues? Just curious on any ideas.




This is only a part of your budget. What about expenses? Have they dropped?
AugustinD


Posts:1920


05/26/2021 6:12 AM  
Posted By JillS8 on 05/26/2021 5:53 AM
What does the board do when our reserves are 100% funded? Do we decrease our monthly dues? Just curious on any ideas.
Can you quote exactly what your covenants say about setting the monthly dues / annual assessment for members? Typically the annual budget determines the monthly dues. For, say, the coming year, the reserves are still forecast to be 100% funded, and a lower assessment would meet the operating (maintenance et cetera) needs of the HOA, the monthly dues / annual assessment could go down.
MarkM19
(Texas)

Posts:844


05/26/2021 6:27 AM  
Jill,
If in fact your reserves are currently at 100% congratulations. That is a good accomplishment and the only way this would be know is by a recent Reserve Study. When they gave you this report is always comes with a 20 or 30 year plan that outlines future spending. I would imagine that you probably have some major expenses that will happen in the next few years that could take 20% of those reserves at any time. These are all typical things that happen in every HOA. If you are starting Budget talks and money gets tight your board may consider trimming your assets that go into reserves but should never even consider stop adding to this account. It will go up and down over the years and a single snap shot is never the only picture.

The only analogy that I can think of would be cancelling your Health Insurance because your Family has not been sick in a while.
SheliaH
(Indiana)

Posts:4290


05/26/2021 6:30 AM  
Congrats on the 1000% funding reserves (most HOAs, including mine can't say thst!). But as John noted inflation hasn't gone anywhere and so you'll like have to continue adjusting assessments accordingly.

That doesn't mean there won't be years where you might be able to keep the assessments the same. you should also be taking a look at routine expenses to see if there are areas where you can cut costs. For example, look at some of your contractors - there could be services you no longer need. or consider bidding out the work. A contractor may offer you some price breaks for being a longtime customer in order to keep your business.
KellyM3
(North Carolina)

Posts:1806


05/26/2021 7:50 AM  
Jill,

I would hold dues rates at the existing monthly rate.

Then, lower the reserves deposits to offset any operational budget increases until you ultimately slip below 100% Reserve Funding and then resume full deposits.

That said, being 100% funded in Reserves is only half of this equation. Is your community fully up-to-date on the maintenance and replacement of the amenities covered by the Reserve Fund? If not, your HOA board should still hold rates steady but start reinvesting in the amenities.

An HOA can get to 100% funding if it never spends money and defers maintenance.
MaxB4
(California)

Posts:1601


05/26/2021 7:53 AM  
You are only 100% for a specific point in time. It means you are contributing 100% of the required contributions to replace an asset when it's useful life is up.

An example, if you have a pool heater that costs $2500 and has a useful life of 5 years, then to achieve 100 funding, you will need to contribute $500 annually for its potential replacement in 5 years.

Maintaining a reserve account(s) and reserve study is a science, especially when there is a large number of assets. But, pack yourselves on the back, you are on the correct path.
NpS
(Pennsylvania)

Posts:4216


05/26/2021 8:49 AM  
We own our streets, water lines, and wastewater systems.

When we repaved our streets for the first time a few years ago, we learned that, while the surface asphalt was generally consistent on all streets, the underlying base was not. We spent roughly 125% of the amount that the reserve specialist estimated in the reserve study - because the reserve study only dealt with items that the reserve specialist normally expected and could visually inspect.

We also added to our wastewater management system. The reserve study only dealt with the replacement of what was in place at the time, and did not take improvements into consideration.

We have a similar situation with our streetlamps. The reserve study only contemplated a conversion to LED lighting, but not the additional cost of a more decorative appearance than the shoebox lights we have now.

As far as underground water lines are concerned, no one can estimate the cost of replacing those lines 20 years from now, or what the useful life will be with reasonable accuracy. In my experience, this is one of the biggest holes in many reserve studies I have seen.

Then there's the question of how to handle items that will need to be replaced in 35 years. Many reserve studies limit their projections to 30 years, and will ignore items with longer useful lives.

Finally, you can sometimes manipulate the outcome of the study by negotiating the inflation and bank interest rates used in the study. These differences would astound many.

So while the 100% funded designation might be a feel-good measure, there is substantial risk that your actual experience could differ substantially from the reserve study estimates.

IMO, it is far more important to look at improvements you may want or need beyond the cost of baseline replacement before thinking about reducing the amounts contributed to reserves.

Sikubali jukumu. Read all posts at your own risk.
CathyA3
(Ohio)

Posts:2599


05/26/2021 10:28 AM  
One thing to keep in mind is that projected reserve requirements are not hard dollars. They're estimates based on educated assumptions about the remaining useful life of physical assets and economic conditions over the next 30 or more years. Some of these assumptions will turn out to be wrong.

I agree with others who recommend not making huge changes. What you're doing has been working well, and as long as you comply with your governing docs and state laws about reserve requirements in HOAs, you're good. If you have a few extra dollars lying around and you haven't updated your reserve study in the last couple of years, you may want to consider doing so. The economy has gotten a good kick in the last two years and more frequent extreme weather events are beating up on physical assets, so any projections done a few years back are probably overly optimistic.
JohnC46
(South Carolina)

Posts:11665


05/26/2021 11:25 AM  
Posted By CathyA3 on 05/26/2021 10:28 AM
One thing to keep in mind is that projected reserve requirements are not hard dollars. They're estimates based on educated assumptions about the remaining useful life of physical assets and economic conditions over the next 30 or more years. Some of these assumptions will turn out to be wrong.

I agree with others who recommend not making huge changes. What you're doing has been working well, and as long as you comply with your governing docs and state laws about reserve requirements in HOAs, you're good. If you have a few extra dollars lying around and you haven't updated your reserve study in the last couple of years, you may want to consider doing so. The economy has gotten a good kick in the last two years and more frequent extreme weather events are beating up on physical assets, so any projections done a few years back are probably overly optimistic.



I agree. Also if you ever refund money or reduce dues, you will play hell getting it back if needed.
AugustinD


Posts:1920


05/26/2021 12:02 PM  
Posted By NpS on 05/26/2021 8:49 AM
As far as underground water lines are concerned, no one can estimate the cost of replacing those lines 20 years from now, or what the useful life will be with reasonable accuracy.
For COAs/HOAs with significant length of underground piping, and having observed pipe failing within 25 years, this is one I have pondered. I think NpS is right on, regarding the high margin of error for estimates of useful life, or even the expected lifespan, of, say, PVC piping (which is often used for underground piping) are all over the map. Can PVC water supply piping be replaced piecemeal? Sure. But this is likely a lot more expensive than doing it all in one fell swoop.

How long does interior PVC pipe last? Longer than exterior pipe, for the most part. But the latter is not all that helpful. When would a condo association's interior pipe all have to be replaced? Maybe this point denotes the end-of-life for some condos, given that the replacement of interior pipe means tearing out all the walls and so on.

I wonder how long some condo buildings will last. The life expectancy of apartment buildings (without major renovations) is like 75-100 years. New York City has some apartment buildings over 100 years old. (Then again, New York City is supplied by "Water Tunnel No. 1" and "Water Tunnel No. 2," completed in 1917 and 1935 respectively. This is like 20+ foot diameter piping. The shutoff valves for the two tunnels are so beat up that engineers are afraid that shutting them, to do repairs on the tunnels, might mean the valves could not be opened again. Construction on Water Tunnel No. 3 started in 1970. Perhaps NYC is hanging on by a thread, infrastructure wise.)

A study of condos that have been razed on account of age yada could be interesting.

From Aug 2020, https://www.hawaiibusiness.com/condo-owners-beware-part-1/:
A Condominium Can Last Hundreds of Years, But Not Its Components

A 40-year-old Honolulu condominium can show its age in many ways: brittle, leaking pipes; cracks in its concrete walls and decks; rusted rebar; and corroded railings and window frames.
Dana Bergeman is the CEO of Bergeman Group, a local construction management company. He says many of Hawai‘i’s condominiums were built in the 1960s and ’70s and are reaching the point where they will need major infrastructure, cosmetic and architectural improvements to keep their value and remain liveable.
...
Kimo Pierce, president of Hawaii Plumbing Group, says condo associations should start looking at replacing their pipes at 40 years and be ready to start the project at 45 years. Once the pipes hit 50 years, he says, a condo is “on borrowed time.”

Cast-iron drain, waste and vent pipes eventually rust from the inside out. That can lead to clogged and cracked pipes and, eventually, water leaks. It’s during the investigation of these leaks that contractors discover if the pipes need to be replaced, he says.

There can be millions of feet of pipes and hundreds of units in a high-rise condo, so the process to repipe involves a lot of coordination. Contractors hold town hall meetings before construction begins to educate owners about the project, its schedule and what’s expected of them. They also do a pre-construction walk-through of each unit to check for any preexisting water damage and to identify which walls will be removed and how they will be replaced.The cost to complete this work is generally influenced by the size of the building, how the pipes are laid out, the number of stacks shared between units and other variables, Lecky says. Pierce estimates that a one-bedroom, one-bathroom condo can cost $17,000 to $20,000 to repipe. That means a 100-unit building with all one-bed, one-bath units might cost $1.7 million to $2 million to repipe.

Bergeman says, depending on the building’s configuration, he’s seen per-unit prices range from less than $10,000 to over $80,000, but the typical cost is $20,000 to $30,000.

MelissaP1
(Alabama)

Posts:10590


05/26/2021 3:04 PM  
My question is why have none of the money has been spent on the purpose of the reserves? I would suspect there may be some items on that list that could use some attention by now. I would not reduce the dues. Would instead concentrate on using the money what it was saved up for if it is needed.

Former HOA President
KerryL1
(California)

Posts:8729


05/26/2021 3:17 PM  
It's very possible, Melissa that an HOA's reserves can be 100% funded, and repairs/replacements have been occurring regularly.

When one of our reserve accounts reached 130% funded, we reduced the monies to it for a couple of years, but we all still contribute to it. Just less than previously.

WE don't have our drain lines in reserves yet--we're 20 y.o. But we probably should start thinking about it. Thanks for interesting info Augustin.
LetA
(Nevada)

Posts:1466


05/26/2021 3:50 PM  
Posted By JillS8 on 05/26/2021 5:53 AM
What does the board do when our reserves are 100% funded? Do we decrease our monthly dues? Just curious on any ideas.





You don't need to over fund your reserves. That is awesome that you are 100% funded, most places are barely at 85% if that.

I would continue to monitor your reserve payments and replenish the reserves as needed. It is also a good rule of thumb to have three months of operating funds. If you constantly have that, them I would consider lowering assessments, but there might be some vendor price increases that would make that idea moot.
KerryL1
(California)

Posts:8729


05/26/2021 5:26 PM  
We've had a couple of different certified reserves analysts and they always recommended a regular monthly contribution. They do NOT recommend to "replenish when needed."
MaxB4
(California)

Posts:1601


05/26/2021 5:57 PM  
Posted By MelissaP1 on 05/26/2021 3:04 PM
My question is why have none of the money has been spent on the purpose of the reserves? I would suspect there may be some items on that list that could use some attention by now. I would not reduce the dues. Would instead concentrate on using the money what it was saved up for if it is needed.



Do you really know how reserves studies work?
Please login to post a reply (click Member Login on the menu).



Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.







General Legal Notice:  The content of forum messages are from the posting member and have not been reviewed nor endorsed by HOATalk.com.  Messages posted by HOATalk or other members are for informational purposes only, are not legal or professional advice and do not constitute an attorney-client relationship.  Readers should not act upon this information without seeking professional counsel.  HOATalk is not a licensed attorney, CPA, tax advisor, financial advisor or any other licensed professional.  HOATalk accepts ads from sponsors but does not verify sponsor qualifications nor endorse/guarantee any sponsor's product or service.
Legal Notice For Messages Posted by Sponsoring Attorneys: This message has been prepared by the sponsoring attorney for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Readers of HOATalk.com should not act on this information without seeking professional counsel. Please do not send any sponsoring attorney confidential information unless you speak with the sponsoring attorney or an attorney from the sponsoring attorney’s firm and get authorization to send that information to them. If you wish to initiate possible representation, please contact an attorney in the firm of the sponsoring attorney. Sponsoring attorneys that post messages here are licensed to practice law in a specific state or states as indicated in their message signature or sponsor’s profile page. (NOTE: A ‘sponsoring attorney’ is an attorney that is a HOATalk.com official sponsor and is identified as such in the posted message or on our sponsor page.)

Copyright HOA Talk.com, A Service of Community123 LLC ( Homeowners Association Discussions )   Terms Of Use  Privacy Statement