Why do reserve studies go out 30 years
Dennis,
I live in a community where most of the residents are 60 and over. Our current reserve study requires 85% funded at year 30. Most of our residents will not live in their home until age 90 or above. In fact, multiple homes in our neighborhood have been sold and resold over the past 5 years. I could get the % of turnover easily by looking at the property tax portal for my county. My question is why are reserve studies pegged at 30 years and not 15 or 20 years? Most of our component items have an estimated useful life of 10 years or less. With a reserve study requiring 85% at year 30, and a resident population that will probably be entirely different in 20 years, why are we contributing funds today for the component to be replaced 3 times (or more) when we probably won’t be here. Shouldn’t the reserve template require some support for the number of years the template is extended to the desired 85% funded position? I would think the neighbohood turnover % should be a factor to be considered. Thank you and others for your thoughts regarding this question.
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Reserve studies go out 30 to 40 years to get more opportunity to spread out the cost for long term maintenance. You are absolutely right there clearly situations where current homeowners are paying into funds to address issues that may only occur after they have left the community. The same situation existed for the homeowners that paid into reserve accounts before you bought your home that allowed you to benefit from those upgrades during your tenure. The longer the reserve study goes out the less anyone has to pay on a year-to-year basis to maintain that reserve account. Like it or not well planned and well-disciplined reserve accounts benefit everyone eventually and you take on the responsibility to pay for the expenses of the association when you buy into these communities. The worst thing that any community can do is not fund or under fund the association reserves than suddenly a major issue occurs, and the current homeowners are left with the burden to pay for the entire expense with a special assessment. This is like playing Russian roulette. Which homeowners are going to get the bullet and which escape paying anything. I realize that it is frustrating for seniors with short term horizons to pay into something that you’ll most probably never see, but that is the nature of the beast that is common interest communities. Shorter reserve funding plans simply mean that the people in the community will always have to pay more to adequately fund the plan during their tenure.
Dennis
Nothing other than your association’s own documents require reserve studies to go out 30 to 40 years that is simply the typical horizon. I was treasurer for a small community and developed a reserve plan that went out 80 year, to make sure that we at least some picture of the impact of inflation and increased cost. If your community believe that you can shorten your reserve horizon than change your documents that mandate the current requirement. So many things can happen to finance and to the cost of products and services that the further you go out the muddier the picture looks. The closer you are to any project the clearer you can see the impact of inflation and the adequacy of your reserves to complete the needed repairs or upgrades.
I have never liked percent funding numbers for any reserve plan because it is a totally fabricated number. This was something CAI dreamed up because it leads to associations collecting more money than they truly need and with that excess they typically find ways to spend that money on things that they do not really need. It just goes to build the HOA industry at the expense of the homeowners. The only number that really counts is do you have enough money in the reserve to pay for the things that need to be done this year, and every year after that. This is called “just in time funding” and is the approach that real companies use to pay for capital improvements. CAI and the whole HOA industry does not want any association using this strategy because it undermines their agenda.
Dennis