Reserve Studies

(00:00) Speaker:   It's time for AMG's 2024 Community Leaders Series podcast edition. Over the last three decades, AMG has worked to make the role of community leaders more effective and less of a headache. Seminar topics are a response to which our executive board members have requested. And now here's your host and President of AMG, Dacy Cavicchia.

(00:23) Dacy Cavicchia:  Welcome to the 2024 Community Leaders Series Podcast Edition presented by AMG. I'm Dacy Cavicchia, President of AMG and your host for this episode focused on reserve studies. I'm delighted to introduce our special guest, Tyler Hall. Tyler is the Charlotte Regional Engineering Manager at Giles Flythe Engineers Incorporated. He brings over 15 years of expertise in facility design, construction administration, and special inspections. Additionally, he's conducted cost segregation studies for various commercial real estate properties and numerous capital reserve studies for community associations. Tyler has the professional designation of Reserve Specialist from the Community Associations Institute and is a licensed professional engineer in North and South Carolina, Georgia, Texas, and Tennessee. Welcome, Tyler.

(01:17) Tyler Hall:  Hey, Dacy.  Thanks so much for having me. It's great to be here.

(01:20) Dacy Cavicchia:  Well, let's go ahead and start with our first question that I think is going to be really relevant to a lot of our community directors. Can you explain to our directors the purpose of a reserve study?

(01:32) Tyler Hall:  Sure, absolutely. The reserve study is a critical tool for a community association to plan for future maintenance or repair needs in the community. When you have these expenses that add up over a long period of time that are not on an annual basis, it doesn't really make sense to put these expenses in your operating budget. Typically, HOAs are going to have two forms or two accounts that they're budgeting for. One would be the operating expenses on an annual basis or annual maintenance program. These are going to be things like paying a good community manager like yourself and landscaping, those things that have contracts. Right. That's got a set fee. The reserve portion. Some call it long term or long-range planning is really what a reserve study is to focus on, to make sure you're saving enough money for the expenses that occur on a non-annual basis.

(02:32) Dacy Cavicchia:  All righty. Well, thank you Tyler. Now let's take a quick AMG Community Leaders Series newsbreak. Stay tuned. We'll be right back.

(02:39) Speaker:  And now it's time for your HOA Solutions Today newsbreak.

(02:44) Newsbreak:  Congress is currently reviewing the proposed Disaster Assistance Fairness Act, which seeks to address disparities in Federal Emergency Management Agency, FEMA, recovery assistance provided after natural disasters. The bill aims to extend FEMA aid to HOAs, co-ops, and condos, offering essential support like roof repairs and debris removal, similar to what single family homeowners currently receive. Presently shared interest communities often do not qualify for federal disaster aid, hindering their ability to rebuild homes and communities. The bill, known as H.R. 3777, proposes amending the Robert T. Stafford Disaster Relief Act, to include critical common elements of community associations under FEMA's Federal Assistance to Individuals and Household program. Additionally, H.R. 3777 would make HOAs and cooperatives eligible for FEMA's assistance and debris removal after major disasters. The bill has garnered support from national organizations advocating for multifamily homeowners and boards. According to Thomas M. Skiba, CEO of the Community Association Institute, this act will provide crucial access to FEMA's recovery resources, enabling condominiums and cooperative buildings to be restored to habitable conditions after various natural disasters.

(04:01) Dacy Cavicchia:  We're back, I’m Dacy Cavicchia, and I'm here with Tyler Hall discussing reserve studies. Tyler, what's the process of conducting a reserve study entail?

(04:11) Tyler Hall:  Sure. So, our standard process for reserve study, once we've went through the proposal process with a community board, typically we're going to analyze historical information about the community and any previous capital repair projects. We want to know what a community's done or possibly what they're even planning to do before we get started. And then comes the most important part for a reserve study, which is the site inspection. In my opinion, the site inspection and engineer or your reserve specialist is going to go out to the community, walk through that common area that you are maintaining or that that HOA is responsible for, and take measurements and verify current conditions. Essentially, we're doing a property condition assessment to see what condition this common area component is in, or all the common area components, rather. So, for these communities who have pools and tennis courts and stormwater ponds, we've got to look at all those things, make sure they're functioning adequately. Number one. Number two, how old are they? They determine when we're going to need to repair or replace these things. Then once we have done that site walk and that condition assessment, we're going to bring all that information back to the office and start the financial analysis side of things, where we're going to develop cost estimates for the repairs needed, replacements that are needed. Determine how often and when those repairs are going to be required. We're going to compare the estimated cost for those components to those repairs to what you're currently saving or reserving to determine if your current reserve revenue is enough to cover the costs over the term of the study. The problem becomes, when you don't have enough funding, then what do you do? We're going to develop funding alternatives to make sure that the HOA stays in the positive, be able to cover all their expenses, and keep up with maintenance through the community. So, we're going to develop that financial analysis for current funding and then provide funding alternatives for them to ensure they're properly funding their reserves. Then the next step is going to be to draft the technical report, and reserve site is going to include a narrative, right. It's going to describe the community, its condition. We're going to have paragraphs in there for each component typically and give the board and the association the understanding of what they are including in this reserve study. We would then draft that report. It's going to include the funding analysis in it and some photographs to show the components and their conditions to help further describe these things that we're talking about. Before we finalize that report, though, we as a company, we want to meet with the board. We want to make sure that they understand the reserve study, get any comments, any questions out of the way before we finalize that report. So typically, we would attend a board meeting and walk through them, walk them through this reserve study to make sure they know how to use it. Before we finalize and seal and send them a report to use.

(07:16) Dacy Cavicchia:  Hold that thought, Tyler. We have another AMG Community Leader Series newsbreak.

(07:20) Speaker:  And here's another HOA Solutions Today newsbreak.

(07:24) Newsbreak:  North Carolina's Orphan Roads issue has long been brewing under the radar, but the state's rapid population growth is shedding light on the problem. Orphan Roads, lacking clear owners and not maintained by municipalities, exist in subdivisions with homeowners’ associations or road maintenance agreements, causing confusion and financial burdens for homeowners. The lack of road turnover to cities or counties results in roads not meeting required standards, making them ineligible for state takeover. Many potential home buyers are not aware of the situation, as the North Carolina Real Estate Commission's disclosure forms do not include this information. The North Carolina Department of Transportation imposes density requirements and specific conditions for road maintenance, disqualifying many orphaned roads from meeting these criteria. Consequently, hundreds of miles of rural roads and streets across the state are left unattended and unclaimed, earning the moniker Orphaned Roads. Notably, North Carolina is one of the five states where most non-city local governments do not have their own road departments, worsening the challenge of addressing the orphaned roads issue as the state's population continues to grow. The urgency to find solutions to this problem escalates.

(08:36) Dacy Cavicchia:  Welcome back folks. I'm Dacy Cavicchia here discussing reserve studies with engineer Tyler Hall. Tyler, I understand the cost varies by the size and complexity of the community, but could you provide a broad range of what reserve studies might cost? For example, what was one of the least expensive studies you conducted last year and what was one of the most expensive?

(08:59) Tyler Hall:  Sure. So, we conduct probably over 400 reserve studies every year, wide range of communities certainly going to vary on the size of the community. How many units do you have? What are your common areas? What are your amenities? Are you a high-rise condo or are you a single-family home with an entrance on a pond? I would say typically on the low end of the spectrum, you're in that $2,000 range to kind of start off, that's your small HOA. You've got an entrance sign, maybe a pond or two, but not a whole lot of common areas or elements. We've also done high rise situations or reserve studies for schools, even that can get up into the $10,000 - $15,000 range with significant amount of property, multiple buildings that you are maintaining and private streets. That's really going to be a big hit for reserve studies and reserve accounts is going to be maintaining private roads, especially miles and miles and miles of them. So, it's really going to vary depending on that situation for a community.

(10:07) Dacy Cavicchia:  So how will reserve studies? How can they actually save a community money?

(10:14) Tyler Hall:  Sure. That's a great question. A lot of people think, oh no, we're getting a reserve study, our dues are going to go up. But really the purpose and intent of that study is to make sure you're saving appropriately. How that helps you save money in the owner's eyes is going to be that you're, you know, keeping your property up to a good standard and you're reserving enough money to do that with the dues. And you're being able to do that in small increments over time versus large increases in a short amount of time, or we're trying to avoid special assessments. That's an assessment that's in addition to your standard monthly or annual dues that you're going to have to pay this lump sum of money to make up for not having enough reserves. So, to be able to save that a little bit over time helps us compound. You can even use, you know, certificates of deposits and interest rates in good markets to help your community earn money and save money. You're also saving money from, the other option for maintenance is you don't have the money, you can't special assess. You can take out loans from a bank, which there are certainly situations where that's palatable, but you're saving money from not paying interest to a bank to do these repairs. Instead, you're earning interest on your saved dollars. So that really helps associations.

(11:35) Dacy Cavicchia:  That is great information. Thank you so much, Tyler. We're going to take one final newsbreak.

(11:40) Speaker:  And now our final HOA Solutions Today newsbreak.

(11:45) Newsbreak:  In a groundbreaking development, an HOA in Green Valley, Arizona has secured its place in history by becoming the very first local homeowner’s association to achieve certification as a Firewise USA site. The momentous feat was initiated by a dedicated group of residents who are already familiar with the Firewise program, through their volunteer work with the Green Valley Fire Department. Becoming a Firewise USA site is no small task. It requires immense dedication, meticulous planning, and relentless effort from the committed team of volunteers within the community. Becoming a Firewise USA site requires significant effort and strategic planning by a committed group of volunteers within each community. An HOA must first complete a comprehensive wildfire risk assessment of their community with the guidance of a local wildfire expert. The community must then formulate a meticulous three-year action plan that prioritizes crucial steps to reduce the risk of ignition to homes. After becoming certified, each neighbor is expected to annually dedicate at least one volunteer hour per dwelling unit to wildfire risk reduction and is required to complete educational and risk reduction actions outlined in the three-year plan. With this commendable achievement, the Green Valley HOA joins a select group of approximately 125 Firewise communities in Arizona, with about 20 of them located in southern Arizona. With more communities and homeowner associations showing interest in the Firewise program, the state's landscape is witnessing a remarkable transformation in wildfire preparedness and prevention. Green Valley's pioneering achievements sets a shining example, instilling hope for a safer and more resilient Arizona in the face of future wildfire challenges.

(13:26) Dacy Cavicchia:  We're back everyone. And as we close, I think it would be important to remember a few takeaways. Tyler, what kind of takeaways would you have for the boards?

(13:35) Tyler Hall:  Sure. Some key takeaways for reserve study is really it's going to answer that question of how much should we save helping you prepare for these future expenses that you may not have familiarity with. So, some really key factors for reserve study is use the reserve study to help your HOA make maintenance planning for long term expenses. I would say find an industry professional that has experience in property condition assessment and cost estimation to help your association through this process. It's very common that boards don't have a construction or a cost estimating background. Find a reserve specialist or someone like that that does, to help you through this process. And then certainly you're going to have to update these studies. It's not a once and done kind of a thing. Updating a reserve study should happen every 3 to 5 years to ensure that HOA is properly funding the reserves. This helps combat things like inflation that we've seen here recently, as well as getting accurate cost estimates to date dollars and getting the professionals eyes on the condition as well to make sure your common areas are wearing and tearing as they should, and nothing is expediting. That's the kind of takeaways I would have here for an association looking at reserve studies.

(14:53) Dacy Cavicchia:  Well, thank you everyone for tuning in to our episode and a special thank you to Tyler Hall for speaking with us about Reserve studies. I'm Dacy Cavicchia, President of AMG and your host for this episode of AMG’s 2024 Community Leaders Series Podcast Edition. To explore more of our podcast episodes or access additional 2024 CLS content, please visit            HOACommunityleaders.com. Thank you, Tyler. We appreciate you doing this.

(15:21) Tyler Hall:  Thank you Dacy. Thank you so much for having me.

(15:23) Speaker:  Thanks for listening to AMG's 2024 Community Leaders Series podcast edition. To find out more information on this episode, please visit HOACommunityleaders.com. This podcast is a production of BG AD Group. All rights reserved.

Use the reserve study to help your HOA make maintenance planning for long term expenses.

Find an industry professional that has experience in property condition assessment and cost estimation to help your association through this process.

Updating a reserve study should happen every 3 to 5 years to ensure that HOA is properly funding the reserves.

Navigating Changing Laws and Regulations: How HOAs And COAs Can Work with Banking Partners To Plan And Prepare

A new Florida law, effective July 1, will increase accountability for condominium associations (COAs) in buildings three stories or taller. The law addresses key areas such as reserves, recordkeeping, maintenance, and repairs. COAs can prepare for compliance by collaborating with their banking partners to prioritize capital projects, select appropriate contractors, and explore loan options. Examples of necessary projects include roof replacement, concrete restoration, painting to prevent leakage and elevator maintenance. By working together, project managers and bankers can ensure these tasks are appropriately prioritized. This legislation affects Florida’s approximately 49,000 HOAs and 27,000 COAs, impacting a significant number of homeowners across the state.

Leaders In HOAs Discuss How to Improve Sustainability Practices

Residents from over a dozen Montana HOAs recently attended a sustainability workshop addressing education, financial challenges, and practical solutions for HOAs. The workshop covered topics such as achieving sustainability certification, combating wildfire threats, forming action committees, and fostering collaboration between community managers and renters. The workshop director highlighted the excellent collaboration between HOAs and property managers but noted differences between vacation rentals and second homeowners, emphasizing the need for tailored approaches based on varying priorities and resources. Key focus areas included landscaping, waste and consumption, finance and governance, and energy efficiency. Organizers plan to gather feedback from attendees to create a resource guide for homeowners based on these categories.

HOAs must file BOI reports with the Financial Crimes Enforcement Network

Despite pending Congressional actions to limit the Corporate Transparency Act, HOAs and board members are currently required to comply with beneficial ownership information (BOI) reporting requirements. Accurate and timely reporting is crucial to avoid severe penalties, including fines of $500 per day for ongoing violations and criminal penalties such as imprisonment for up to two years and fines up to $10,000. CAI is advocating for efforts to relieve HOAs from the BOI mandate, arguing that HOAs were likely not the intended focus of federal financial crime prevention efforts. Additionally, individuals may face civil and criminal penalties for willfully failing to file required BOI reports or for submitting incomplete or false ownership information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FINCEN).