Condo Bylaws Association With Low Reserves In Contra Costa
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FAQ
Achieving a 70% funded reserve is considered a milestone for inium associations, indicating a reasonable level of financial preparedness. It signifies that the association has taken proactive steps to ensure the long-term sustainability of the community and mitigate the risk of financial instability.
A reserve fund is savings or a liquid asset set aside to cover unexpected costs or future financial obligations. Many governments, financial institutions, and individuals regularly set aside funds into accounts that earn interest.
On average, The Board should be setting aside 15% to 40% of their total assessments towards reserves, although for some simpler situations, a more minimal reserve fund ratio of 10% to 15% may be sufficient. Develop a funding plan that aligns with the calculated reserve fund requirements.
Percent funded as defined by National Reserve Study Standards is “The ratio, at a particular point of time (typically the beginning of the Fiscal Year), of the actual (or projected) Reserve Balance to the Fully Funded Balance, expressed as a percentage.” More simply, Percent Funded compares what you have (Reserve ...
So how much should your HOA have on hand to address these inevitable repair and replacement costs? A good rule of thumb is for Reserves to be funded at 70% or higher of the property's calculated deterioration.
Reserve Studies Are Required All associations, regardless of size, must prepare a reserve study (Civ. Code § 5550) unless the total replacement costs are less than 50% of the gross budget of the association, excluding the association's reserve account for that period. (Civ. Code § 5550(a).)
The Federal Housing Administration (FHA) has weighed in by requiring approved inium projects to have at least 10% of the annual operating budget set aside for reserves. However, that percentage is arbitrary and is usually never enough for an association that has to paint and replace roofs.
California Civil Code 5550 requires a Reserve Study based on a “diligent visual site inspection” at least every third year, but requires the Board review that Reserve Study annually and “consider and implement necessary adjustments”. That's called an annual Reserve Study update.
