Having an adequate condo Reserve Fund means that your facilities are able to be repaired when something breaks. If the paint on the buildings is starting to peel, or the asphalt in the parking area is developing cracks or the tennis court fence needs to be replaced, those items would be paid using Reserve Funds.
What is a reserve fund in a condo?
According to the Condominiums Act 1998, all condos must have a reserve fund to protect against budget issues. The reserve fund sets aside money for non-routine repairs and replacements. This might include replacing the roof or HVAC system, or a major repair to the swimming pool.
Is it better to have more money in condo reserves?
My opinion would be the more money in condo reserves the better. Condo Associations should budget each month to put money from condo fees aside for the future replacement of common areas and facilities. How much is determined by the size of the property and the amount of condo association common areas that will need attention down the road.
How much does my condo maintenance fee go into my reserve fund?
If your condo maintenance fees are $500 each month, that doesn’t mean that $500 goes into the reserve fund. In fact, in ten downtown Toronto condos, you’ll probably find ten different percentages with respect to how much money from each monthly payment goes into the reserve fund.
How often does a condominium need a reserve fund study?
Thankfully, the Condominium Act dictates that every condominium built after 2001 must have a Reserve Fund Study completed every three years, so even if a board of directors is completely out to lunch, they’ll probably be brought back for a light snack in 36 months… How Much Should Maintenance Fees Increase Each Year?
How much should a condo have in its reserve fund?
According to the Condo Act, 10 percent of a new condo's operating budget must go towards the reserve fund.
How big should a reserve fund be?
The operating budget should result in an excess every year to fund the reserves. This excess is based on the reserve study and/or the 5 year capital plan. In addition, you should fund the reserves with at LEAST 10% of the annual assessment income as a rule of thumb.
How much of a reserve fund should I have?
Despite a number of issues and hindrances, most HOAs are able to have a 70% funded reserve. While not at full capacity, 70% is a good level to maintain. This allows the HOA to fulfill its duties and responsibilities without compromising any needed expenses within the community.
What is a healthy HOA reserve?
The HOA reserves rule of thumb is based on the idea that a HOA has a minimum of 60% of the depreciated value of all the common areas at any given time. By maintaining a 'healthy' level of reserves a HOA or condo reserve fund limits the risk of needing to ask for addition funds (special assessment) from its members.
How do I know if my condo association is healthy?
One of the best ways to find out how healthy an HOA's finances are is to take a detailed look at its receive fund. A healthy reserve fund is a sign of a well-run HOA and shows everything from repairs, maintenance, where funds are lacking, specific financial goals for the HOA, and more.
What are the 3 types of reserves?
Reserve in accounting is mainly of 3 types....Types of ReservesRevenue Reserve. ... Capital Reserve. ... Specific Reserve.
How many months of reserves should I have?
The rule of thumb says a cash reserve should be large enough to cover six months of expenses. Or 12 months.
How many months worth of expenses should a financial reserve include?
three to six monthsWhile the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.
How are reserve funds calculated?
If a community opts for reserves, the reserve account funding must be calculated based on each asset's estimated deferred maintenance or replacement cost divided by its predicted useful life remaining. Fla. Stat. §720.303(6)(g).
How much reserve should an HOA have in California?
On a practical level, adequate Reserve contributions, required by almost every association's Governing Documents, comprise 15-40% of the association's budget. This means Reserve contributions are one of an association's largest budget line items.
What is the purpose of a reserve fund?
A reserve fund is a savings account or other liquid asset managed by a condominium, business or individual for anticipated future expenditures, such as major repairs and improvements. Reserve funds usually are set aside in an account separate from the general operating funds.
What does fully funded reserves mean?
The authors of the standards defined the term fully funded as being “100 percent funded when the actual (or projected) reserve balance is equal to the fully funded balance.” The fully funded balance is the balance that is in direct proportion to the fraction of life “used up” for a given component.
How are reserve funds calculated?
If a community opts for reserves, the reserve account funding must be calculated based on each asset's estimated deferred maintenance or replacement cost divided by its predicted useful life remaining. Fla. Stat. §720.303(6)(g).
How do you account for reserve funds?
Reserve accounting is quite simple - just debit the retained earnings account for the amount to be segregated in a reserve account, and credit the reserve account for the same amount.
How often should a reserve fund study be done?
every five yearsA reserve fund study of the depreciating property of a condominium must be conducted every five years.
What can a reserve fund be used for?
Reserve funds can only be used for major repairs to the condominium building, that is, the major repairs or replacement of the assets of the corporation, including the common elements. They may also be used for additions, alterations and renovations.
Why does my condo need a reserve fund?
Beyond the legal obligation to establish a reserve fund under the Ontario Condominium Act, a reserve fund is your community’s way to plan and prepare for the inevitable repairs and updates you know will happen, such as replacing a shared roof or resurfacing common roads and driveways.
How are reserves funded?
Reserves are funded by owner dues and assessments. Additional money can come from interest and returns earned from existing reserve funds.
How much money should a condo have in its reserve fund?
Every condo is unique and will require a different reserve amount depending on its needs, size, type, location, and other factors.
What are reserve funds used for?
The reserve fund study will establish what spending is eligible, but in general your reserve fund will cover all of the condominium’s common elements – those property elements that are not exclusively owned by an individual owner.
4 Benefits of Well-Funded Reserves
Creating and maintaining an adequate reserve fund is part of a board’s fiduciary duty. The following are four reasons to make sure your reserves are properly funded.
What should your reserve fund balance be?
The short answer: Your Reserve Fund balance should at least be equal to the cost for the Condominium Owners’ usage of the common elements to date.
What does "you" mean in a condo?
Applying this to Condominiums, ‘you’ means the collective you, not just the penthouse owners that the roofing most directly protects. Therefore, using the aforementioned exercise to determine the cost for usage of all common elements to date, you know how much should be sitting (well invested) in your Reserve Fund.
What are the upsides of condo living?
Condo living certainly has its upsides. Unlike a private home, when you live in a condo you don't have to worry about maintaining a yard, repairing the roof when it leaks, or handling other maintenance outside of your unit.
Do smart buyers check condo reserve?
Smart buyers will check the percentage of their condo's reserve before buying. The laws about condo reserves and how often your HOA should conduct a reserve study vary by state.