Association “Internal” Financing By: Gary Porter, CPA, RS, FMP Facilities Advisors International As a reserve preparer our company is dedicated to helping guide associations towards the goal of having sufficient funds to pay for their future major repairs and replacements – the reserve fund.  Since 1982 we’ve counseled associations to not underfund reserves and to never...

The Fourth Wave – Condo Finances Condominium living offers many benefits and has become a very popular form of housing.  Those choosing to become condominium owners understand that they will pay a monthly fee responsible for funding both day-to-day operating costs as well as future major repairs and replacements (known as a reserve fund).  The intent when determining...

Reserve Studies - The Complete Guide   Gary Porter and Pierre Del Rosario, the principals of Facilities Advisors International LLC, are the authors of "Reserve Studies - The Complete Guide."  This Guide, published in October 2015, is the most comprehensive analysis of the reserve study process ever compiled. The guide is available as an Adobe document at HOA Pulse....

While some reserve professionals place great reliance on the percent funded calulation as an indicator of the "strength" of the reserve fund, we believe that this approach is both too simplistic and based upon assumptions about how the percent funded calculation is made.  Many of these individuals continually state that if you're 70% funded, that is considered a strong l...

"Pay me now or pay me more later."  I don't know who coined that phrase, but I’ve heard it repeated often. In my 30 years as a reserve professional I have seen the truth of that phrase demonstrated time and time again. In many condominium developments, a few components are so large and account for such a significant portion of the reserve budget, that any remaining compon...

Most of the reserve studies performed by our company occur in states that have adopted statutes establishing reserve study requirements. Since most Associations will try to comply with state statutes, it makes sense that more reserve studies are performed in states that have such statutes. However, acceptance of a reserve fund as being a good business practice is also widespr...

The reserve study consists of a number of estimates and assumptions. All of them are important, but one stands out as having significant impact upon the calculation of needed reserves - remaining life of components. As an example, if your previous reserve study indicated that the remaining life of the roof was 15 years and it is now determined to be only 10 years, then yo...

Setting the scope of the reserve study is one of the most overlooked aspects of the reserve study process, and is one of the primary reasons that Associations may be dissatisfied with the end product reserve study that they receive. This article explores the reasons why you choose to have a reserve study, and how that affects the scope of the reserve study. Scope of the study a...

Setting the scope of the reserve study is the first step in selecting a reserve study company. If you don’t know where you want to go, you probably aren’t going to get there. See attached article on setting the scope of the reserve study. After you have determined the scope, then write your RFP (Request For Proposal). This is important, because if you don’t write an RFP that es...

We are right in the middle of the reserve study busy season and are again being asked by a number of our clients whether or not it is permissible for them to have contingencies within their reserve study. In some Associations, this is just a given. In other Associations, there are member factions that will react quite strongly against the inclusion of contingency in the reser...

By Gary Porter, RS, PRA and David McDermott, AIA Three relatively similar services are frequently provided to communities within the homeowners’ association industry. Because there is still some confusion over what each service represents, an Association can occasionally have expectations that far exceed the scope of a reserve study (the most superficial of the three servi...

Recognizing a Failed Reserve Funding Plan By: Gary Porter, RS, PRA We recently performed a reserve study for a 40-year old condominium association and discovered an all-too-familiar scenario we’ve seen in older projects.  The situation? Huge deferred maintenance obligations that should have been resolved long ago, and an assessment structure that is higher than comparabl...

Should Painting Be Included In The Reserve Study?   The question of including painting in reserves continues to arise, even 15 years after the matter should have been settled.  To understand why, you need to know that this issue first arose from tax considerations, not because of any budget, maintenance, or economic factors. Painting is one of the largest expenditures that m...

Consideration of Interest and Inflation In The Reserve Study   Both interest and inflation considerations are important to the calculation of your future reserve requirements.  Unless the association has made a conscious decision to transfer all interest earnings to the operating fund (which is the subject of an entirely different article), it is generally assumed t...

ARE RESERVE FUND ADDITIONS "CAPITAL CONTRIBUTIONS"  FOR TAX PURPOSES? By: Gary Porter, RS, FMP, CPA   Most discussions about homeowner association income taxes begin and end with the single issue of filing Form 1120 or Form 1120-H.  This is usually discussed simply from the perspective as the difference in tax rates.  But, Form 1120 carries significantl...

How Safe Are Your Reserve Funds? By: Gary Porter Many associations, more than half, according to CAI’s recent survey, file IRS Form 1120. We all know the reason; to take advantage of the 15% corporate tax rate versus the 30% homeowners association tax rate. But you have to give something up to gain this tax advantage. And what you give up is the safety of IRS Form 1120-H (IRC...

ESTABLISHING RESERVE POLICIES by Gary Porter   After all, what is a reserve study? And why do we need any policies to manage reserves? First, the reserve study is a rather limited scope evaluation of the association’s physical common area components for the sole purpose of establishing a financial plan for the orderly accumulation of funds to be available when necessa...

  BORROWING FROM YOURSELF TO FUND RESERVES By: Gary Porter   Virtually all Associations have a Replacement Funding Program. The methods of funding these programs, however, are diverse and varied. An Association may have a Level Funding Program, whereby amounts are added to Replacement Funds on an equal and pro-rata basis based on a straight line method of funding until su...

CALCULATING RESERVES By: Gary Porter For some associations, their governing documents require that reserves be determined and/or funded. In other situations, state law, such as California's Civil Code Section 1365 or Florida's Administrative Code Section 718, requires that reserve studies be prepared.  The requirement could also be in the form of case law, such as Califo...