Someone who attended one of our recent webinars asked an interesting follow-up question worth sharing. His association manager had recently told him that a Funding Plan based on the Straight Line methodology (also known as the Component Method in National Reserve Study Standard terminology) was more accurate than a Funding Plan based on the Cash Flow methodology, and he wanted my opinion on the matter.
What’s better – $50/mo Reserve contributions (as part of your condo’s total monthly assessment) or $70/mo? All other things being equal, I’d rather pay a $50 monthly bill than a $70 monthly bill. But… not all other things are equal.
At Association Reserves we understand board members face a big challenge to budget for the maintenance and replacement of their association’s major common area assets. Boards typically have little knowledge of project costs and when those costs are expected to occur.
It is true that accuracy of Reserve projections increases as the projected expense approaches. An expense expected in the next five years (Remaining Useful Life of 0-4 yrs) is much more certain in timing and cost than an expense projected 25 or so years away.
An attendee at one of our webinars earlier this week (click here) asked if it was ok to defer a project with a Remaining Useful Life (RUL) of 0 until the following year, and how that should be communicated in the Reserve Study. Deferring a project can be done, but it is a decision made by the Board, and something the Board communicates in a document separate from the Reserve Study. The Reserve Study is where the association communicates to the members the status of the physical components, the preparedness of the Reserve Fund to deal with those projects, and the ongoing contributions to the Reserve Fund necessary to offset that ongoing deterioration.
