Condominium Reserve Study: How Solid is Your Plan?

Reserve studies are a critical strategic budgeting tool for residential communities, and one could argue even more vital for condominium properties that share common walls, spaces and mechanicals.  As a practice, your condominium owners association (COA) should update its reserve study every three to five years to ensure the plan is still valid based on the current condition of your property.

If you’re unsure of when your COA last conducted a reserve study and simply want to get a general sense of how solid your reserve study may be, here are a few quick tips to help you assess if your plan is up to par.

Get a quick snapshot using the 20/10 rule.
 

In general, you can quickly interpret solvency of a high-rise property using this simple rule of thumb.  According to Damian Esparza, CEO for Barrera & Co., a reserve study firm specializing in high-rise condominium properties, “If your community is allocating $.20 on the dollar to reserves you can probably assume solvency or overall long-term financial health of the property.  On the contrary, if you contribute as low as $.10 then it’s likely the community is insolvent.”  Per Esparza, this is just a basic guide, and may not apply to a high-rise association that is already behind and may require a higher percentage of reserve funding.

Make sure critical components are included in the plan.

Items such as elevators, exterior waterproofing, itemization of HVAC and even plumbing replacement are important.  These mechanical or structural failures could result in large unexpected expense.  “A good reserve study specialist will work with a structural and mechanical engineer to get the best insights on the current condition and life expectancy of your equipment and building,” stated Esparza.  If your property has an engineer on staff, they should be able to provide maintenance records and discuss plans for facilities management. 

Another important budget consideration is funding for plumbing replacement. Even if it’s a small percentage, it should be listed on the component inventory.  Esparza notes that in the past, plumbing replacement was considered “Life of Project,” but as high-rises mature these replacements are becoming more of a reality and very costly.”  Reserve specialists can generally estimate a base price ($18-$25/Square Foot) and time table of 50-70 years, but an evaluation by a licensed expert can determine a more detailed time schedule and budget for replacement which can be incorporated into the reserve plan.

A good reserve plan will also allow for sequencing or laddering of replacement items.  Not all materials wear evenly and materials in common areas that see more use will tend to require replacement sooner.  An example here would be replacing carpet or flooring in the building. Carpet in high traffic areas, usually on amenity levels, will likely need to be replaced more frequently than flooring on top floors that may be used less often.
 
When’s the last time your COA updated its reserve study?  As a board member, you have a fiduciary responsibility to protect property values and the safety of the residents in your building.  A professional property management company, like FirstService Residential, will offer additional expertise in facilities management and access to quality preferred vendors that can help keep your condominium property in top working condition, as well as partner with your board to make sure your association is financially sound.

Contact one of our client relations managers today to get a free assessment of your condominium property and learn more about how our team can provide exceptional service to you.