condominiums to have at least 10% of your annual operating budget set aside for reserves, this amount will most likely not be enough. Associations that have funded 100% or 90% of their budget should have sufficient funds, but will 40% or 50% funded reserves be enough? It really all depends upon the current status of the association. If you are an association that is only two years old, then this would probably be reasonably sufficient since it will most likely be quite a few years before any major projects need to be completed. The same could be true for an association that just completed most of their large reserve projects, since the amount they will need over the next few years will be a lot less. This is why a cash flow method is a good method to fund reserves, especially in the current environment.
It is even more important now for an association to look at its reserve study and evaluate the projects that are anticipated for the next 3 to 5 years. Will the association have adequate funds for these projects? Will it need to increase its reserves, which may not be feasible in this current economic environment? Can the association delay some of the projects by doing additional maintenance now? Associations should consider hiring consultants now, such as a roofing contractor, to provide a better estimate if the association’s roof will need replacement in the next few years, for example. It could be that the weather has not been as bad over the last few years, so an association’s common area component may have a longer estimated
s no
useful life than originally anticipated. Perhaps now would be the right time for an association to begin contacting a financial institution regarding a loan or line of credit. Please keep in mind that most financial institutions have certain requirements regarding delinquencies and rental units so every association should be reviewing this monthly. Also, it is important to keep in mind that if an association obtains a loan, it may have to increase assessments or pass special assessments to the unit owners in order to pay for the loan. Alternatively, the association could consider taking out a loan with a longer, more affordable repayment term since this may not be the best time to special assess unit owners.
Having a beautiful community due to properly funded reserves is so important to the future of your
association. This will also increase the likelihood of having proud, happy, and unified members.
www.cai-illinois.org • 847.301.7505 | 37
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