Townhouse/Association Reserves metric?

Question

Hi all, Does anyone have an easy metric or calc to analyze whether an Association's reserves are sufficent?

Ed Wood · Answer

Nice good luck, I forgot to mention in the report they rate the reserve as a percentage of expected coverage.  If it is much below 75% you need to start looking.  If it is below 50% the HOA may have problems heading their way.

Michael Lee · Answer

Thanks Ed.  I'm looking at a townhouse as income property right now... Thanks!

Ed Wood · Answer

All state requirements are different there should be a reserve study.  "A reserve study is a study made of all the major capital systems in the association," explains Robert Galvin, a partner at Davis, Malm & D'Agostine PC in Boston who specializes in representing condos and co-ops. "It evaluates how much life they have left and how much they're likely to cost when they wear out. From that, you can calculate how much money the association has to set aside each year to have enough to replace those items when they do wear out."

How do you do that calculation? You take the estimated replacement cost and divide it by the number of years the item is estimated to last. That number is the amount you should reserve each year.

source: http://www.hoaleader.com/public/320.cfm

In your HOA documents (at least in CA) there is a ratio already calculated and disclosed along with the date it was calculated.

Hope this helps.