How have condos fared with reserve funding during high periods of inflation?

I’m currently looking at the reserve study for our condo. This complex has historically had its reserves underfunded and over the past 5 years has worked towards having its reserves fully funded through additional fees.

However, the last 3 years has made some of the projections inaccurate. One of the capital projects went over budget by a significant amount. Part of this was additional out-of-scope work, but initial quotes were also in excess of the basis value as determined by the initial reserve study in 2010. By law, the association by law can only invest in lower risk investments – our money market account makes around one tenth of 1 percent. Effectively this additional percentage of capital contributed into the reserve fund is being negated by inflation.

This seems like it would be a huge problem for all condo associations that only do periodic reserve studies and are limited with investments. Because the reserve is targeting projects 5-15 years out, and those at 15 years are large projects, those far-away projects are now less likely to get funded as we are effectively underfunded for the short-term projects until the next yearly fee increase. If I had a single family house, I’d be able to push the risk to a higher acceptable tolerance and then borrow from those investments, rather than pre-paying into a fund that’s depreciating.

This seems like a death spiral for any aging community. Effectively, the reserve will need to grow at a rate to equal inflation, plus the amount needed to catch up to fully fund the reserve. Anyone else who oversees association finances dealing with this?

submitted by /u/FancyTeacupLore
[link] [comments]

I’m currently looking at the reserve study for our condo. This complex has historically had its reserves underfunded and over the past 5 years has worked towards having its reserves fully funded through additional fees. However, the last 3 years has made some of the projections inaccurate. One of the capital projects went over budget by a significant amount. Part of this was additional out-of-scope work, but initial quotes were also in excess of the basis value as determined by the initial reserve study in 2010. By law, the association by law can only invest in lower risk investments – our money market account makes around one tenth of 1 percent. Effectively this additional percentage of capital contributed into the reserve fund is being negated by inflation. This seems like it would be a huge problem for all condo associations that only do periodic reserve studies and are limited with investments. Because the reserve is targeting projects 5-15 years out, and those at 15 years are large projects, those far-away projects are now less likely to get funded as we are effectively underfunded for the short-term projects until the next yearly fee increase. If I had a single family house, I’d be able to push the risk to a higher acceptable tolerance and then borrow from those investments, rather than pre-paying into a fund that’s depreciating. This seems like a death spiral for any aging community. Effectively, the reserve will need to grow at a rate to equal inflation, plus the amount needed to catch up to fully fund the reserve. Anyone else who oversees association finances dealing with this? submitted by /u/FancyTeacupLore [link] [comments]

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