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RESERVE FUNDS & THE RESERVE STUDY: A Multi-purpose Tool

RESERVE FUNDS & THE RESERVE STUDY: A Multi-purpose Tool. MTU. Operating. Operating. Reserves. Operating. Reserves. Surprises. Annual Reserve Expenses. Which Components? How much $? How much to Contribute?. 1998. Calculated. Which Components Belong?. Reserve Component List.

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RESERVE FUNDS & THE RESERVE STUDY: A Multi-purpose Tool

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  1. RESERVE FUNDS & THE RESERVE STUDY: A Multi-purpose Tool MTU

  2. Operating

  3. Operating Reserves

  4. Operating Reserves Surprises

  5. Annual Reserve Expenses

  6. Which Components? • How much $? • How much to Contribute?

  7. 1998

  8. Calculated

  9. Which Components Belong?

  10. Reserve Component List

  11. How much $ should we have?

  12. Do we have enough?

  13. Have your Reserves kept pace with deterioration?

  14. Deficit Reserve Funds Deterioration (Pct Funded under 100%)

  15. Balance Deterioration Reserve Funds (Pct Funded = 100%)

  16. Surplus Deterioration Reserve Funds (Pct Funded over 100%)

  17. How much should we Contribute?

  18. Total Budget Reserves (Avg 25%) Operating 15% - 40% Typical

  19. Percent Funded

  20. Percent Funded

  21. Types of Reserve Studies… & Types of Providers?

  22. Full 1 Update With-Site Visit 2 Update No-Site Visit 3

  23. Do Only Once Full Every Few Years WSV In Between Years NSV

  24. Who do you Trust?

  25. Who do you Trust? RS or PRA

  26. Independence!

  27. Simple Summary – Four Reserve Rules www.ReserveStudy.com/blog

  28. Underfunding?

  29. And now for the Reality!

  30. Reserve Funds Reserve funds are monies identified for use to defray the future major repair or replacement of components for which the association is obligated to maintain.

  31. Reserve Funds Reserve funds are monies identified for use to defray the ongoing cost of deterioration of components for which the association is obligated to maintain.

  32. Why have Reserve Funds Key to a Strong Foundation Most association documents and many states have laws requiring separate reserve accounts. Having and regularly funding an association's reserve account is key to a strong financial foundation.

  33. Adequately funding reserves will accomplish the following: • Fulfill the Board’s fiduciary duty to fund reserves • Ability to make necessary repairs and replacements when needed • Prevent deferred maintenance and greater long term costs • Avoids special assessments and angry homeowners • Reduces liability for Boards • Avoids inability of homeowners to sell or refinance due to buyer or lender concerns over low reserve funds

  34. What can Reserve Funds be used for? 1. Reserve funds should only be used for the purpose (maintain a reserve component) they were set aside for. 2. TMT shall recommend that the board not expend funds designated as reserve funds for any purpose other than the repair, restoration or replacement of a major component which the association is obligated to repair and for which the reserve fund was established, or as otherwise authorized under state statutes.

  35. It is critical for all associations to have a plan for regularly funding their reserves. How much does and association need? Enter…. The Reserve Study! Are you practicing Management with a “C.O.S.” ? (Communications, Objectives, Structure) Once quantifiable objectives are defined and agreed upon, the Reserve Study is a critical tool in leading your Board to accomplish their goal. Leadership Management Moment

  36. What is a Reserve Study? A Reserve study is a planning tool designed to help the Board of Directors anticipate and prepare for the repair and replacement of the association’s major physical assets (components) it is responsible for maintaining.

  37. A Reserve Study • Identifies the major components and projects their future maintenance requirements 2. Estimates when work will be needed 3. Estimates what the cost will be • Provides recommendation for annual reserve allocations 5. Maintenance obligations for the next 30 years

  38. Why Have a Reserve Study? A reserve study is a critical tool to ensure the Board of Directors understands their association’s long term financials needs and can plan accordingly. Some State statues require reserve studies. A reserve study prepared by a professional is key for the proper management of an association.

  39. Boards of Directors have a fiduciary duty to: • Maintain its physical assets (reserve components) according to the governing documents and state statutes • Understand its funding needs & plan accordingly • Levy regular assessments sufficient to perform its obligations under the governing documents, including reserve funding. • Have a reserve study prepared by a professional

  40. But Wait…What does it all mean? • The Reserve Study: A Multi-Purpose Tool* • Understanding Reserve Terminology* • *See attachments

  41. How is a Reserve Study prepared? Reserve studies are prepared in a two part process: A visual analysis and a financial analysis. Trust Reserves Our product combines professional knowledge with practical management experience. Be sure your Board receives a proposal from a TMT Analyst. Trusted Partners Whenever possible, we call upon our trusted vendors for bids and maintenance planning proposals to enhance our reserve study product. TMT Point of Differentiation

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