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FULLY FUNDED RESERVES
QUESTION: When 100% funding is referred
to, what exactly does it mean?
ANSWER:
The definition of 100% funding is confusing to many people. If your reserve study states that you need to replace
your roof in 10 years at a cost of $100,000, "fully funded" does not mean that you have $100,000
today. It means that you have $10,000 in the bank this year, $20,000 next year,
$30,000 the following year, and so on until you have $100,000 on year 10 when
the roof is scheduled for replacement.
Healthy Reserves. To determine how
healthy your reserves are,
divide the amount of money actually in your reserves by the amount that should be
in the account. For example, if on year 5 you have $15,000 instead of the $50,000 called for
by your reserve
study, you are only 30% funded. If your reserves are in the 0-30% funding range, you
can expect frequent and significant
special assessments. Associations in the 70-100% funding
range are considered financially strong, and special assessments should be rare.
Finding Qualified Companies. How can
boards find qualified companies to perform their reserve studies? The Community Associations Institute (CAI)
awards a "Reserve Specialist"
credential to qualified companies. There is a similar credential called the
"Professional Reserve Analyst" administered by the
Association of
Professional Reserve Analysts.
*Special thanks to: Robert M. Nordlund of
Association Reserves, Inc.,
www.ReserveStudy.com, for the above information.
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Sincerely
yours,
Adrian
J. Adams, Esq.
Adams Kessler PLC |
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