For those wondering about how much condo associations should have in reserves, there is much to consider. Every strong condo association should have a substantial reserve set aside to cover a variety of costs. Without such a cushion, those taking care of the everyday needs of your building and those who make up the condo board will find themselves in very challenging situations.
Factors Influencing the Reserves Your Condo Association Should Have
When setting the reserve for your condo association, keep in mind the type of unexpected expenses that may come up. These can include:
- Regular maintenance and repair costs for common areas.
- Landscaping projects.
- Improvement of common areas.
- Cost of insurance deductibles in case an insurance claim is necessary.
- The cost of inflation.
In addition to these expenses, your condo association should have a cushion to cover immediate expenses in case of extensive damage or loss. The industry recommendation is $60 to $150 per month for each unit in your building or 10% of the annual budget for the condo association. However, your amount may be higher or lower depending on the number of units in your building and the amenities you offer. Bear in mind this amount is in addition to the operating budget funded by residents to pay staff and take care of common areas.
Condo Association Reserves and Special Projects
The inevitable deterioration and replacement of worn-out systems necessitate sufficient reserves to take care of such issues. These special projects are infrequent but costly. Therefore, a good strategy is to build a capital projects fund within the reserves to cover such costs. When spread out over several years, the costs are much more acceptable. If your building is relatively new, the HOA reserve fund doesn’t need to be as high. This is because replacements and repairs are not likely to be necessary for the near future.
Challenges to Building Reserves
Like any other business, a condo association can sometimes struggle with obtaining payment from its residents. If a significant percentage of residents are on a fixed income, they may be less able to adapt to increases in reserve demands and special levies. High vacancy rates in your condominium can also cause a challenge to building a good reserve, as fewer people are contributing. Then there are often individuals who don’t pay; in that case, using a collection agency may help.
When setting your reserves, be flexible. Choose baseline funding instead of full funding where possible. Above all, be upfront with your condo residents and communicate with them on a timely basis about what is happening, what is not, and where their money is going.
How much should condo associations have in reserves? To answer that question, contact our team of specialists at Ardent Residential.