HOMEOWNERS TAKE A TIP FROM CONDO ASSOCIATIONS
July 30, 2016

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Many people enjoy single family homes that are not under the rules and regulations of an association.  However, there are some association practices that would benefit the average homeowner.  Every year the association prepares a budget for the upcoming year.  This is the basis of the Homeowners Association (HOA) dues.  As one would expect, the budget projects the costs for repairs and maintenance of the complex for the next twelve months.  But it contains something more.

A number of years ago, when HOAs faced expensive replacement costs, homeowners would be hit with a special assessment that needed to be paid immediately.  This practice created a heavy burden on many and California began requiring the associations to prepare reserve studies every three years.  From those studies, a portion of the dues is now earmarked for a reserve account.  So when the roof needs to be replaced, the pool resurfaced, or private streets repaved, the funds are already in a reserve account.

A homeowner can create a similar study.  First, make a list of major replacement projects that must be done every several years. Assign the useful life left on each project and the cost of doing that project today.  The annual reserve amount for a project is determined by dividing the cost by the useful life.  When a project is done, it gets added back to the list with a new useful life.  Costs should be updated every few years.

Project Remaining Useful Life (in years)  Cost  Annual Reserve (Cost/Life)
Paint exterior 3     5,000  $   1,667
Replace roof 15   15,000       1,000
Resurface pool 7     8,000       1,143
Replace water heater 4     1,200          300
Total Annual Reserves  $   4,110
Monthly Reserve  $      342

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