Over the last 30 years we’ve helped thousands of clients across the country anticipate and prepare for their community’s major repair and replacement costs with Reserve Studies.

Armed with this knowledge HOAs can make accurate disclosures to homeowners and set their monthly dues accordingly.

But where do you start? Try this handy list of 5 tips for reading your Reserve Study:

1. Don’t get stuck on the Percent Funded Report.

A common misstep when reviewing the reserve study is getting stuck on the first section, the Percent Funded Report. While this report does offer valuable information regarding the condition of the reserves at fiscal year-end, it is only a snapshot in time prior to the beginning of the report.

While it is possible to review component data from the Percent Funded Report, it is not recommended as the information is incomplete. Quantity, unit of measurement and cost per unit data are only available in the Component Report; it is the last section of the reserve study and where serious review should begin (see #2).

2. Review the Component Report first

The component report houses what are essentially the “meat and potatoes” of the reserve study. The useful-remaining life, quantity, unit of measurement and cost per unit data are what drive all projected disbursements over the 30 year projection. This is where you will also find non-reserve components included for visibility such as those treated as maintenance/operating, individual homeowner responsibility, life of project, etc. There are also notes regarding any significant changes and their sources.

Once the component report has been reviewed and any necessary revisions have been incorporated, you can move on to assessing the financial condition of the reserves.

3. Understanding the Percent Funded Report

Percent funded is a rolling metric that measures the relation of actual to ideal cash on hand at the end of each fiscal year. The easiest way to understand what 100% funded represents is to take the example of a component that has a service life of 10 years and a replacement cost of $10,000.

The required funding is a straight line depreciation figure so for each year in service you should ideally have $1000 set aside to cover the use of that asset. In a perfect world after 5 years in service there will be $5000 in the reserve account, or 100% of the ideal value. If after the 5 years in service there was only $4000 in the reserves, this would represent 80% funded ($4k/$5k = .8).

4. Current, 100% & Threshold Funding models

A common question by both management and board members alike is “where is the recommendation?” The truth is, our reserve study format does not offer a recommendation, what it does provide are:

1) Current Funding – a picture of what the association is doing today and where it will get them, the year 1 annual funding will be whatever is in the current budget.

2) 100% in 5 Yrs. Funding – a goal oriented funding report with a self-explanatory title, the year 1 annual funding requirement is what would have to be approved in the budget to meet the goals of this plan.

3) Threshold Funding – a secondary goal oriented report that is designed for the association to sufficiently meet all scheduled expenditures over the 30 year projection while maintaining a threshold cash balance (5% of the current replacement costs rounded to the nearest 5k).

5. Implications of implied year 1 funding requirements

Ultimately if we have to make a recommendation we are going to say get to 100% and stay there as this is the most conservative approach. In reality this is either unattainable or undesirable for most associations. The beauty of our goal-oriented reports is that they create a high-and low-end benchmark for the year 1 funding requirement. By design, as long as the association’s annual contribution from regular assessments falls between the 100% and Threshold year 1 requirements the association will be projected to meet all scheduled expenditures over the 30 year projection.

If there is a cash deficit represented, the threshold funding year 1 requirement is usually a good place to start. Meeting the year 1 threshold requirement as previously stated will put the association on track to sufficiently meet all scheduled expenditures; however, it does not provide much room for errors such as unforeseen/emergency expenditures, borrowing from reserves, etc. It is not recommended to try and maintain a Threshold Funding level; it is simply a bare minimum requirement which will provide the association with a clean Disclosure Statement.

Read more: 

What information do I need to provide to get a Reserve Study?

Get the most from your Reserve Study

Interested in getting a Reserve Study for your community? Click here to get a proposal!

In happy times past, you’re association may not have had any trouble collecting dues.  But like most, in these troubling economic times, you may be finding yourself in a bit of a predicament – suddenly many owners are behind, some way behind. Should you hire a collection agency to help collect?

Let’s take a look at some potential issues with this strategy.

Perhaps the biggest issue is collection agencies’ policies regarding autonomy in how they deal with your homeowners. They may or may not be successful in collecting unpaid dues, but at what cost? In the eyes of your homeowners, these collection agencies are speaking for you, yet you have no control over them. This can create a lot of tension and dissention in the ranks.

Debt collection is an ugly business to be in. No one wants to do it but everything’s got a price, right? Don’t be surprised if the agency keeps 20-33% of the money recovered. That’s a lot!

So let’s recap.

Hiring a collection agency means you risk ruining long term relationships with your neighbors AND you will only end up with a third of the debt owed – at best.

So how should your association go about collecting debt?

The least expensive and most effective tactic is personal contact – by mail, phone and in person. Many times you can avoid legal action just by being diligent. Of course, this won’t work every time.

The next step is a small claims lawsuit. This doesn’t sound like fun, but often times, it’s still less expensive and more viable than the other options available to you. Once you drag someone in to court, they will usually pay up. If not, you can attach assets like wages and bank accounts. Is it fun? No. Does it work? Yes!

See related:

HOAs cut your costs in 2013

Can HOAs buy distressed units?

Can HOAs sell common areas to boost revenue?

Interested in getting a Reserve Study for your community? Click here to get a proposal!

A down economy is no fun. Not for you, not for your neighbor, and certainly not for your Homeowners Association. Homeowner delinquencies and HOA operating costs are both on the rise, creating a perfect storm for collecting assessments. We’ve put together a list of 4 tips that should help. 1. Take control Many HOA boards leave collection to the Property Manager. After years of smooth sailing, some Boards fail to understand or even recognize the magnitude of delinquencies until its too late. There’s nothing wrong with that but make sure you take a hands on approach, understand the current status of delinquent payments and speak to your Property Manager often to find solutions. 2. Know your rights Make sure you read your CC&Rs and understand both the rights of your Association as well as the homeowners. Know exactly what is allowed to happen when delinquencies occur. Can you add late fees, interest and collection costs to the outstanding amount? What are the timelines for doing so? 3. Take action Now that you understand your rights as an HOA board within your community, its time to exercise them. The biggest mistake we see people make is to let owners go more than 30 days without a past due letter. Be timely about the warnings because if you don’t it will make it much more difficult to enforce the consequences. 4. Be consistent You should have a formal collection process in place. Everyone should be aware of it. Anyone past due should get the same letter at the same time. There should be no exceptions to. If you do not follow this advice it will be infinitely more difficult to collect. The bottom line: There’s no golden ticket when it comes to collecting money in a down economy. However being proactive, educated, organized, and consistent will certainly help.

See related:

Can HOAs buy distressed units?

Can HOAs sell common areas to boost revenue?

Interested in getting a Reserve Study for your community? Click here to get a proposal!

Distressed Units

There’s an argument floating around that HOAs should purchase distressed properties in their association so they don’t get sold for pennies on the dollar later on. The thinking is that if you can invest the organization’s funds to maintain property values in your community.

It looks good on paper but it’s rarely done.

The truth is most HOAs don’t have that kind of cash lying around. If they do, there are typically better uses for it. Like for example, funding your reserves!

Also, there is no guarantee that investing in distressed units will directly benefit current homeowners. The valuation of their unit is based on market price. Picking up a unit here and there isn’t going to move the average much, if at all.

Furthermore, depending how your association’s governing documents are drafted this may not even be permitted. Even if they are it’s going to be a tough sell to the owners; particularly in this economy.

Let’s pretend for a moment that this is feasible and you have the support of your community. Maybe you’re planning to rent the unit until the market recovers.

Are you ready to be a landlord? You’ll need to be ready to oversee tenants, make payments and pay assessments to the association, keep the unit(s) maintained etc. Most HOAs have enough to worry about without coming up with extra money and taking on additional responsibilities.

Ok, you get it. It’s a bad idea, right? Not always!

There are times when such purchases can and do work out for HOAs. For example, maybe the community has a need for additional assets like a clubhouse housing for a superintendent.

If your association is considering the purchase of distressed units, the bottom line is this: make sure the money is there, the community agrees, it is an appropriate use of HOA funds and you’re ready to take on the added responsibility.

See related:

The role of an HOA Property Manager

Vacancies in your community – What can you do?

Interested in getting a Reserve Study for your community? Click here to get a proposal!

 A Homeowners Association (HOA) is the governing body of a planned unit community, or real estate development. It’s created so that the organization and maintenance of the common areas are properly supervised. The ruling documents, which are referred to as the Declaration of Covenants, Conditions and Restrictions (CC&R’s), and the By-Laws, specify the HOA board’s responsibilities.

 The board of directors consists of elected homeowners in the community, as well as the original developer.  The developer will contribute dues for any unsold units and thereby holds a strong position on the board, generally until the project is sold out.  Sometimes the developer may retain units as well as a board position; again, the CC&R’s and By-Laws will dictate the terms of these agreements.

Now that you know what the HOA is, it’s important to understand their role.

1. Enforcement of the Rules

When it comes to maintaining a sense of order amongst the homeowners, common areas within the real estate development need to be maintained and certain rules must be followed. The neighborhood and the external aesthetic appearance of homes within the community must also be kept to a specific standard.  All new rules and restrictions are sent out via notices or newsletters to the membership; certain changes may require a majority vote by the homeowners.  New rules cannot negate any previously set down by the CC&R’s without an amendment, which must be voted for by a majority of the membership.

If a homeowner is in violation of a rule, they will receive a notice, explaining how the situation can be rectified and the legal recourse that the HOA might take if the violation is not set right within a given time frame. Commonality, property value and sense of order are maintained within the community when such rules are enforced by the HOA.

2. Minutes Minutes

Keeping a record of decisions that are made during board meetings is also one of the HOA board responsibilities. A document stating issues addressed during the regular or executive meeting is created to keep track of the minutes. The minutes will record the type of information that was focused upon – including any issues that the board members voted on, as well as any objections that were raised by the HOA members.  The HOA may need to reference these details later, or may need to support decisions they made.

3. Execution of Contracts

Another HOA board responsibility is to create binding financial or legal obligations, and execute contracts with third parties on the Association’s behalf. The HOA board is also responsible for acquiring appropriate insurance coverage, hiring a suitable property management company and retaining legal counsel on behalf of the association. The obligatory duties must be satisfied by the HOA board of directors, who must make the best possible vendor and professional choices for the entire body of homeowners.

4. Financial Management

Ensuring that the Association makes sound financial judgments on the homeowners’ behalf is also the responsibility of the HOA board.  It has several financial duties, which include the assessment and collection of dues from homeowners every month. All of the operating expenses of the association are to be covered by these dues, as well as a reserve fund for future replacement of area components and unforeseen costs.  The board and management company are also charged with making certain a reserve study is performed as often as dictated by state law.  The reserve study helps to outline the Association’s annual budget, as well as the ideal contributions necessary to appropriately maintain the reserve fund account.

See related:

HOAs save money with professional Project Management

The role of an HOA Property Manager

Interested in getting a Reserve Study for your community? Click here to get a proposal!

The lawful governing of the Homeowners Association (HOA) is the general responsibility of an HOA Property Manager.

A regular Property Manager may coordinate, direct and approve the sale of vacant properties and establish leases, but an HOA Property Manager also oversees daily operations of the Homeowners Association.

Read More: Property Managers, protect yourself!

Here’s a breakdown of their responsibilities:

Analysis of Property Values

Property values, as they regard assessments of existing property and procurement of new properties, are analyzed by an HOA Property Manager. A detailed report is prepared and later submitted to the Board of Directors, or the homeowners themselves in most cases. During the analysis of property values the general population, population growth and zoning are all considered, as well all recent properties purchased and sold.

Reserve Studies

The Reserve Study is an integral part of HOA management, and the Property Manager must make certain the community adheres to the state laws.  The frequency with which the studies are prepared, as well as the allowed minimum funding of the reserve account, is dictated by the state as well as the governing CC&R’s and By-Laws of the community.

Read More: Get the most from your Reserve Study

Advertising and Marketing

HOA Property Managers may also market vacant tenant spaces to the public, as well as create advertising campaigns and marketing strategies. To keep the public informed of vacancies, both online and offline advertising in media such as community magazines and newspapers, Internet real estate portals and websites are used by HOA Property Managers. They might also list with various property management companies and real estate agents, with the consent of the Board of Directors.

Preparation of Organizational Documents and Reports

A variety of management reports are prepared by an HOA Property Manager, which are later reviewed by the Board of Directors. Account and bookkeeping reports that contain the HOA’s expenses and income transactions, and tenant or homeowner payments of monthly dues are included among the reports. They must also ensure that the business status of the HOA organization is current with the appropriate Secretary of State’s office.  Legal contracts with vendors used to upkeep the property are also handled by an HOA Property Manager, as well as the various maintenance requests.

Responsibilities of HOA Managers to Tenants

When it comes to addressing issues and solving problems, tenants and homeowners tend to rely on the HOA Property Manager. Issues regarding the well being of tenants or residents, and the policies of the Homeowners Association, are usually addressed during community meetings. Advice regarding any decisions that the Board of Directors makes, or changes made to any HOA covenant documents, must also be provided to tenants or owners by their HOA Property Manager.

Education and Licensing

An efficient HOA Property Manager needs to have the skills to resolve disputes. They must at least have an associate degree in business management and, depending on their state laws, must be licensed by the Real Estate Board; they may also be required to have a Real Estate License.

Read More: The Role of an HOA Board

Interested in getting a Reserve Study for your community? Click here to get a proposal!