costs to complete the repairs. However, putting off a necessary repair can be “penny wise and pound foolish” and can risk creating more issues and higher costs (i.e., special assessments) in the future.
One of the keys to understanding the appropriate level of reserve funds for your association, as well as the rate by which the reserve funds should be funded year over year, is to first gain an understanding of the remaining useful life of the association’s major common elements and what the costs will be to make the repairs or replacements. This can be accomplished through the use of a formal reserve study. The reserve study is a process whereby each of the common elements is inspected by a professional; generally a trained engineer. A report is provided to the board showing the estimated useful life of the common elements and the estimated cost associated with each repair or replacement. Let’s assume the cost of replacement required in 10 years is $500,000 and the current level of reserves is at $100,000. The board will need to accumulate $400,000 or $40,000 per year on average, in order to properly fund the project(s). With this information in hand, the board has a starting point when planning the annual budget and a credible source of information with which to have a discussion with unit owners regarding any potential increase in assessments.
4. Keeping the “Wall” Strong and Stable
Being the “keeper of the coin” and defending the “wall” requires proper controls, proactive planning and open communication. Potentially large amounts of money are at risk in an association budget and by taking a few simple precautionary measures, you can keep your promise to defend the wall.
52 | COMMON INTEREST® A Publication of CAI-Illinois Chapter
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