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delaying repair or replacement needs, results in the loss of property value for all unit owners.


2. S Special assessments are burdensome


to homeowners. This option puts financial strain on residents, especially those with fixed incomes. Depending on the volume of assessments needed, it is likely that the additional assessments will span across several years.


3. B Bank loans do not require immediate


contributions from homeowners. However, they have the added expense of interest. Homeowners certainly have more time to assess and adjust their personal finances unlike that of special assessments, but that convenience comes at a cost.


The above options simply address near-term funding shortages. However, these ‘band-aid’ type fixes only address the symptoms of insufficient reserves, not the real problem…..a lack of establishing adequate reserves moving forward. A reserve study is an essential tool to guide the Board and management with a clearly defined path to establishing adequate reserve funds well into the future.


UTILIZING THE


RESERVE STUDY The most successful associations utilize their reserve studies as a starting point and continually assess changing needs to attain long-term success. But what does this process look like? In short, it means keeping the schedule of expenditures and funding plan current and addressing any potential financial shortcomings in their infancy. Over time, priorities and project needs change but one thing remains constant: the need to have adequately funded reserves. What might seem challenging is actually quite simple with the right tools.


Engagement is key. Prior to budget season the reserve study should be updated. Major changes to the community since the previous reserve study may require the reserve study to be professionally updated. The industry standard for professional reserve study updates is typically 3-5 years. However, minor adjustments can easily be handled internally by utilizing the editable Excel spreadsheets provided with the report. Begin with updating the current year’s expenditures and reserve contributions. Next, review each deferred project and determine if it needs to be completed in


34 July | August 2021


the upcoming year. Update the timing of any deferred or accelerated expenditures accordingly. Once this is complete, the updated expenditure tables and funding plan can guide next year’s budget process. Furthermore, updated needs and associated costs enable one to evaluate changing conditions of the property over time and address potential year-end reserve shortages years in advance.


CONCLUDING REMARKS Keeping the schedule of expenditures and funding plan current provides management and the board of directors with the most complete picture of the association’s near- term project needs and long-term financial status. At some point in time, some associations will find themselves deferring projects and / or not meeting their reserve studies recommended level of reserve contributions.


Ultimately, their success is measured by the ability to weather such differences while adjusting the long-term funding strategy to ensure reserves are adequately funded and common property is maintained in excellent condition for decades to come. The reserve study is an important tool for the association in the financial management of its affairs and provides the justification for capital reserve funding which comes from funds collected through association members’ common interest assessments.


ABOUT THE AUTHORS Michael Lockhart is the Northeast Regional Account Manager for Reserve Advisors. Mr. Lockhart is responsible for meeting with and educating managers and association boards on the process and benefits of having a professional reserve study. As an industry expert, he participates in seminars for industry partners including Community Associations Institute (CAI) and numerous professional management firms. Michael is a member of Keystone CAI’s Communications & Content Committee. He can be contacted via email at: michael.lockhart@reserveadvisors.com


Neil Hilkert has more than twenty-five (25) years of professional experience in law, business operations, management consulting and education.


His practice focuses primarily on real estate and general business related transactions and litigation. Much of Mr. Hilkert’s real estate practice deals with the general operation of homeowner and condominium associations and related litigation.


Mr. Hilkert is a member of Keystone CAI’s Communications & Content Committee. He can be reached via email at: neil@reidenbachlaw.com.


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