Quote:
Originally Posted by MeEscape
So, how does one know if the reserves are properly funded?
Do you know of a formula or a good website to help evaluate?
I own in a ski area HOA which has a long term capital study completed however, given the current need for roads, roofs, etc. there isn't much hope to "put away" much more on an annual basis.
Interested in any insight.
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The problem is that most want to keep condo fees artificially low, so they don't properly fund a reserve account. Then when work is needed, they do a special assessment. This has been considered unfair and possibly illegal now, as newer owners are forced to pay for the financial sins of older owners that chose to keep their savings down in an attempt to keep costs down.
Special assessments are to be used for unplanned emergencies, and underfunded reserves are not considered to be an emergency, but rather they are simply poor planning.
Long term maintenance must be considered and saved for. For example, a roof has an expected life span, some types of siding need painting, roads may have a lifespan, heaters have a lifespan. These can and should be planned for, and have savings planned so they can be addressed (replaced or upgraded) when it's needed.
I have done some estimates in the past, but there are professionals that will help you to plan this properly. And using a pro will help you if there is any questions about the validity of such a report.
As an example, if a roof has a lifespan of 25 years, and today it would cost $10K to replace it. Factor in inflation and estimate the cost to replace the roof 25 years from now, then divide by 25 years, you need to save this much per year towards the new roof. Divide by the number of units in the association, and then by 12 to determine the monthly amount that should be in your reserve fund per monthly condo fee, per unit. There is more to it, but this is a rough example.
Of course, the plan can consider using loans or a combination of things to fund needed work. But loans add to the overall costs, but make the monthly payments seem affordable.
Some legal opinions:
https://www.seacoastonline.com/news/...reserve-levels