The Illusion of Being Fully Funded - HOA Reserve Funds

20.04 30 illusion fully funded 2020

Imagine this: You’re looking at your HOA’s bank statement with a smile on your face. You have the satisfaction of looking at the bottom line and seeing a healthy balance in your reserve fund. You feel good about it.

Then you look around outside and see a lot of maintenance that’s not happening. It’s falling apart! You shudder!

Obviously, the HOA hasn’t been spending your monthly dues to fix anything. Even smaller projects are neglected; decks and balconies that are falling apart.

You shudder (again!) to think of the safety and liability issues.

You’re looking at your high-dollar investment in the midst of all this deferred maintenance and wondering if your investment is rising or… falling… (You shudder yet again!!)

The illusion of “high reserve fund security”

gives the HOA board and members a very unrealistic idea of where you stand financially in respect to the reserve funds and the future of your investment.

And it’s absolutely true that if an association doesn’t use a high reserve fund to repair anything, the inevitable ‘falling apart’ happens! Procrastination makes everything worse.

The HOA must spend the reserve money to bring the buildings and facilities up to good repair, which may deplete most or all of the reserve fund account.

Unfortunately, some reserve analysts say that there is a direct percentage correlation between the amount of money in the reserve fund relating to the value of the units. In essence, the higher the balance in the reserve account, the more each owner’s unit is worth. Nope.

Not so. This misguided idea often causes the HOA to ignore deferred maintenance - and then the place falls apart. You already know what disrepair does to your property values.

And what if the amount of deferred maintenance is so costly that it would totally deplete the reserve fund?

Don’t despair! Help is on the way!

Your Facilities Advisors Reserve Study and Management Plan

can also help you with alternative funding ideas. For example, you might be able to fund repairs with a mixture of increased monthly dues and special assessments, splitting that cost over time, with the bonus of not completely depleting the reserve fund.

Although unusual, this management strategy worked out to be a good plan for an association we worked with. They were able to get several projects underway, making their members much happier and increasing the attractiveness of their homes.

Now is the right time to make your Reserve Study plans and an appointment for your site visit.

We operate on a FIFO basis so be sure yours is at the top of our list!

Call Robbie Pepper, your expert Reserve Study Advisor, at (970) 946-2352 for a complimentary chat.