Condo Media - October 2024 - 32

Aging Com
PROPER BUDGETING
AND PLANNING
BY KENNETH TAMSIN, CMCA, AMS, PCAM
BEING IN THE BUSINESS for a good
number of years leads one to develop experiences
that can be brought to the table
when working with aging communities.
Those communities that were new or
newer when I fi rst entered the fi eld
are no longer on the far side of capital
projects but very near to quite a few.
The original budgets - designed to lure
prospective buyers with the promise of
low monthly fees and no responsibility
for maintaining a yard or house - are no
longer adequate. And, why not? Roofs
last 30 years, siding can last " forever, "
gutters never wear out, and roads need
some crack sealing every couple of years,
right? Well, not exactly.
THE DOWNSIDE OF KEEPING COSTS LOW
The boards who took over from the
developer and maintained the " aff ordable "
nature of the budgets from year to
year did no one any favors. Increasing
fees to keep pace with infl ation at a 2%
or 3% association fee increase only kept
communities falling farther and farther
behind. The basic 10% of those fees allocated
to reserves (funds for replacing
32 CONDOMEDIA October 2024
capital assets required to be replaced
by the associations per their governing
documents) on an inadequate budget
that was an industry standard from
a mortgage requirement just did not
make the grade either. Some associations
collected (and still do) a working
capital fee for each sale that equaled
two months of association fees for the
units sold to go right into the capital
asset reserve account. That helped.
However, boards did not know
what they didn't know. Many found
themselves reacting to roof leaks,
failed drainage systems in the roadways
and parking lots, gutters that were
undersized to deal with rain runoff from
large, severely sloped roofs, or issues
with shared HVAC systems that prematurely
failed. Big increases in monthly
fees and large supplemental assessments
(some over $20,000 per unit)
had to be implemented to meet the need.
RESERVE STUDY BENEFITS
Reserve studies give boards the information
they need to make smart fi scal
decisions. All capital assets are assigned
a standard useful life; age of the current
asset and remaining useful life of that
asset are also taken into consideration to
tell you when they need to be replaced,
year by year, out to 30 years.
The current replacement expense is
documented, and an infl ation factor is
assigned. In conjunction with your existing
funding for reserves and balances in
your reserve accounts, a savings interest
rate is utilized as well to add to your
funding for those expenses. The study
tells you where you are now and where
you need to be as each capital asset's useful
remaining life expires.
You can get options for a fully funded
reserve study (whereby the association
is assured of having the funds they need
when every asset reaches the end of its useful
life), or you can get options for partially
funding the replacement costs if you plan
to augment the funding with special assessments
or supplemental association fees.
Boards can take the proper steps to
be prepared for eventual expenses by
aggressively funding their reserves and
doing their capital asset replacements
on a scheduled basis.
Condo Media - October 2024

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