The experience of condo and co-op board members and trustees can often feel like a juggling act. There are varied interests in the community that want different things. There's legal counsel, financial advisers, and managers who try to offer the best professional advice they can, and they may not always line up. It's easy to feel like the life of a board member or trustee consists of mostly just putting out fires, and never getting ahead to the important things. But some boards may not realize that many of those fires might have been preventable in the first place had board members made the smart investments, and took the time to plan.
Just as an individual or couple can have a bank account or into which they can tap into in the event of an emergency, condos and co-ops need a reserve fund for planned, as well as unplanned, expenses. Whether a major repair like a new boiler or roof, or something completely devastating like Hurricane Sandy, reserve funds can offer a great deal of relief and security.
Financial planners and accountants all agree on the importance of a reserve fund. But all reserve plans are not created equal. Careful, competent, professional management is the key. If the rainy day fund can't foot the bill for an unforeseen emergency, boards could find themselves in a tough spot.
Reserve Study Needed
Community association professionals say there is no magic formula for what makes the smartest reserve strategy for an association, although there are general guidelines.
To begin with, buildings need to have a reserve study, which is typically done by an engineer, architect, or reserve specialist. According to Michelle Baldry, PE, RS, PRA, the director of client services in the Northeast region for Milwaukee-based Reserve Advisors, the study is usually done in two parts. A physical study identifies all common area components, assesses the conditions of the components and equipment, estimates the remaining life of these components and estimates their replacement cost. The financial analysis examines the status of current reserves, maps out a funding plan and identifies funding goals. A study will generally take a 30-year outlook, since components like roofs may have life spans in that range.