Estate Living Magazine The Slow Movement - Issue 39 March 2019 | Page 38

C O M M U N I T Y
L I V I N G
BEST PRACTICES
MANAGING
FINANCIAL
RESERVES
Careful planning for future repairs and replacements is in the best physical and fiscal interests
of the community association. Maintaining a reserve fund not only meets legal, fiduciary and
professional requirements, it also minimises the need for special levies, and enhances resale values.
How does an association properly determine and compile adequate reserves to fund necessary
repair and replacement costs? By conducting reserve studies.
RESERVE COMPONENTS
Reserve studies
There are two components of a reserve
study – a physical analysis and a financial
analysis. During the physical analysis, a
reserve provider evaluates information
regarding the physical status and repair/
replacement cost of the association’s
major common area components.
A reserve study should include:
• a summary of the association,
including the number of units/stands,
physical description and the financial
condition of the reserve fund
• a projection of the reserve starting
balance, recommended reserve
contributions, projected reserve
expenses and the projected ending
reserve fund balance for a minimum
of 20 years
• an inventory with component
quantity or identifying descriptions,
useful life, remaining useful life and
current replacement cost
Yes Step 1 - Review community documents to
determine: Is the component part of the
common elements? No
No Step 2 - Is the component covered under a
maintenance contract? Yes
No Step 3 - Is the component included in another
part of the budget? Yes
Yes Step 4 - Is the component a piece of
mechanical equipment? No
Yes Step 5 - Is the useful life of the component
within the selected time window? No
No Step 6 - Is the replacement cost below the
operating budget threshold? Yes
This item is a reserve item
This item is not a reserve item