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Subject: How are your Reserve Funds invested?
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Author Messages
GeorgeS21
(Florida)

Posts:2338


02/13/2020 2:08 PM  
Integrated single family HOA community of 314 residential lots (almost all built out), couple of dozen assessment paying (roads, mainly) commercial lots - budget of about $220K a year. Our total reserves are in the range of $500K, with the current year’s assessments and some retained earnings from last year of another $250K.

Our property manager of six years has great web based tools, online access for Board to almost every piece of data, and uses Mutual of Omaha’s Community Association Banc (CAB - https://www.mutualofomahabank.com/community-association/financial-solutions-community-associations) for banking. The PM’s accountant has the ability to monitor, track and act via the CAB tools. This has all worked effectively as far as I have been able to tell. There is an additional charge of $50 a month for managing non-CAB accounts - the HOA has never gone this route. The PM is obviously trying to shoehorn us into their model.

MoO’s CAB has three types of accounts: (1) checking, (2) money market and (3) CDs.

About half of our Reserves are in CAB CDs (24 month and opened about 18-22 months ago at 0.60%), and about half are in the Checking (0.05%) … none is currently in the money market area at CAB.

Current 24 -12 month CDs are about 1.4-1.75 % (https://www.mutualofomahabank.com/community-associations/banking-solutions/deposits)

Money Market rates are 0.45-0.5% (https://www.mutualofomahabank.com/community-associations/banking-solutions/deposits)

So, given the above, in my mind, we are not optimized. I think we should:
1. Look for higher CD rates and pay the upcharge to the PM if the rate difference warrants.
2. Move a portion of the current Reserves that are in checking status into best rate CD - if the 12 month is 1.75%, do that vs the 24 month at 1.4%.
3. Move a portion of the current Reserves that are in checking status in the Money Market Fund.

Thoughts?
MarkW18
(Florida)

Posts:748


02/13/2020 2:38 PM  
Have you checked rates with other business institutions to compare their rates and then doing the math to see if it pays to switch?

You need to know to properly use your reserve study, money market account and your CD's. It is not about making the most money but having the money available (without penalty) when you need it.

I am sure your PM is an expert in that field.
GenoS
(Florida)

Posts:3685


02/13/2020 2:40 PM  
I wouldn't be happy paying $50 a month for each non-CAB account. What about the FDIC limits? Are you expected to leave amounts in excess of that in MoO accounts to avoid a $50 per month charge for each account outside of CAB?

Every situation is unique and shopping for rates is something everyone should do. We have an operating account at the bank preferred by our bookkeeper. We also have 5 accounts for reserves each subject to the $250,000 FDIC limit. We shopped around for rates last year and they earn about 2% annually on average. That took some time and effort but 2% handily beats the 0.1% we had been earning previously for a number of years with different accounts at different banks. We don't have any CDs right now but our strategy might change if rates at the other banks go down.
MarkM19
(Texas)

Posts:564


02/13/2020 3:50 PM  
George,
I think that the most important thing any board should do with Reserves is Protect the assets of the HOA. It is not any board members job to chase the best rate. It is your job to find a safe place usually primarily in CDs and have cash on hand for upcoming future projects.

I always have been a fan of laddering CDs. If you started with 500K you would have a 3 or 6 month CD for 100k and a 1 year CD for 200K and maybe a 200k CD with a 2 years maturity. They can be set to automatically renew if no action is taken by the board as it reaches maturity. You really should always have some cash in a Reserves Checking account because expenses always happen and if you do not have the cash and have to access the Funds in a CD early you lose the interest you had earned YTD.

No HOA gets Rich of the Interest they earn in the difference 1% or 2%

GenoS
(Florida)

Posts:3685


02/13/2020 6:12 PM  
Save your homeowners $10,000 a year by getting a 2% rate as opposed to doing nothing can be a powerful election campaign issue. Especially in an association where leaving money on the table will cost the owners an extra $100 a year each.
MarkM19
(Texas)

Posts:564


02/13/2020 7:58 PM  
Gene,
You are never going to get a 2% swing in rates. Typically is a .25 percent or less. My point was get the best rate you can with a plan for the future. It is not a investment it is a savings account for future repairs. If you chase the higher rates and lock the money up for 2 years and then need it in an emergency you will lose the Interest earned to get the money. That is why the ladder method is always going to be best IMO. If you lock CDs up for long term and then rates go up by a point or 2 for some unknown reason then the first plan does not look so good. You can not and should not chase a Market it is not a Boards job.

SamE2
(New Jersey)

Posts:247


02/14/2020 6:48 AM  
Ally on-line bank is paying 1.6% on a savings account with no time limits. Discover has an online bank that pays higher interest and so do others. You could use one of those.
SteveM9
(Massachusetts)

Posts:3599


02/14/2020 7:28 AM  
Posted By SamE2 on 02/14/2020 6:48 AM
Ally on-line bank is paying 1.6% on a savings account with no time limits. Discover has an online bank that pays higher interest and so do others. You could use one of those.




Looked into that awhile ago. All these good deals you see like Ally or Discover are not offered for businesses, corporations or trusts. Personal only.

We simply use our bank's cds. Very little interest, but risk free. Which is what you need to do when your dealing with HOA funds.
SheliaH
(Indiana)

Posts:3063


02/14/2020 10:12 AM  
What may be appropriate or not with your community might not be the same for mine or someone else’s. You should be looking at your reserve study and its recommendations and talking with your bank about investing the money in a way where you can meet those goals while not risking the principal (so there shouldn’t be any investment in the stock market – our documents specifically prohibit this.) That’s a challenge these days because it doesn’t seem like anyone has decent interest rates.

PS: be careful with using actual business names on this website – it’s against posting rules
AugustinD


Posts:2948


02/14/2020 10:36 AM  
Does that alleged prohibition against using actual business names still exist? I am looking at https://www.hoatalk.com/Home/tabid/36/ctl/Terms/Default.aspx and do not see it.
MarkW18
(Florida)

Posts:748


02/14/2020 10:39 AM  
Again, the most part of the equation is properly using the information provided in the reserve study when making financial decisions.

Because the cost of borrowing money is SO low, interest paid will also be low.
MarkW18
(Florida)

Posts:748


02/14/2020 10:41 AM  
Posted By AugustinD on 02/14/2020 10:36 AM
Does that alleged prohibition against using actual business names still exist? I am looking at https://www.hoatalk.com/Home/tabid/36/ctl/Terms/Default.aspx and do not see it.



Actually, I believe it does.

(3) No Mention of Community/Company/Person Names: In order to fairly enforce (2) and prevent liability, we do not allow the mentioning of any community name, company name or product.
AugustinD


Posts:2948


02/14/2020 10:46 AM  
This does not appear at the site I linked.
MarkW18
(Florida)

Posts:748


02/14/2020 11:48 AM  
https://www.hoatalk.com/PostingRules/tabid/71/Default.aspx
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