Reserve Data Analysis
About Reserve Data Analysis
Since 1983 we have provided thousands of thorough and well thought
out catered reserve studies and have offices through the US.
Component Analysis Topics
Funding Plan Options & Principles1
Goals of the Funding Plans
Interest & Inflationary Factors
Developing a Financial Strategy
Minimizing Reserve Contribution
& Common Mistakes
Component Analysis is the Foundation
The Financial Analysis is based on the completed Component Analysis. All Funding Plans
developed during this phase of the reserve study process are based on the projected expenses
of the common area components.
Process - The Reserve Study
Step 1 Step 2 Step
Developing a reserve study report requires numerous important steps.
Funding Plans – What Are They?
A Funding Plan is the long term
projections of expenses, needed
reserves and recommendations
to adequately prepare an
Association for common area
repair & replacement costs.
An adequate Funding Plan will
guide an Association to a path of
The goals of a Funding Plan can
be driven by the Client, Statutory
Requirements or National
Reserve Study Standards.
Funding Plan Principles
Does the financial strategy follow the four basic principles
outlined in National Reserve Study Standards (CAI).
Washington State Statutes
WA State RCW 64.34.382 – Reserve Study - Contents
(i) A recommended reserve account contribution rate, a
contribution rate for a full funding plan to achieve one
hundred percent fully funded reserves by the end of the
thirty-year study period, a baseline funding plan to maintain
the reserve balance above zero throughout the thirty-year
study period without special assessments, and a
contribution rate recommended by a reserve study
Goals of the Different Funding Plans
•A percentage or dollar
amount requires by State
•Usually bare minimum
reserve allocation rate
•Developed with specific
Association Goals in mind
•May include special
assessments, loans, periods
of high or low reserve
•Based on Full Funding Goal
•Requires allocation to each
•Typically higher reserve
contribution but low risk
•Not flexible and time
•Reach a full funding level
within a time frame
(usually 30 yrs)
contributions rate with
stable increases annually.
•Fairness to membership
•Keep reserve account
above $0 in the time
period covered in the
•Lower contributions but
higher risk for special
•Maintain a 100% Fully
•High reserve contribution
rate but low risk for
reliance on special
*Threshold – Any predetermined $ or % figure
Funding Goals– Risk Tolerance
• Funding plans that require
lower reserve balances and
allocation rates carry
higher risk for special
assessments and loans.
• Plans that require a higher
reserve balance and
allocation rate have a low
risk for special
assessments, loans and
• This risk level is calculated
in the Reserve Study using
a barometer known as
“Percent Funded” where
100% is ideal but rarely
Funding Plan Goal – Finding the Best
Fit for the Association
The funding plan(s) provided in the
Reserve Study will take into account the
specific goals, risk levels and characteristics
of the community. Determining what is the
“best fit” is the objective of the reserve
Interest & Inflation Data
Interest is based on the
Client provided information
with respects to their bank or
investment account interest
rate as well as historical
Inflation rate is based on
historical averages and cost
manuals. We have great
data in the construction
industry going back over 100
Taxes are also factored into
the interest earned. 15% -
30% is typical for most
Impact of Interest & Inflation
• Inflation has a much greater
impact on the funding plan as
it impacts the total
replacement costs of all the
• Interest is only earned on the
actual dollar amount in the
reserve account and while
beneficial has much less
• **Ignoring inflationary factors
is a common reason
communities find themselves
at poor funding levels. 3%
inflation equals a doubling of
costs every 24.5 years.
I D E A
• Offset the impacts of
inflation with regular annual
increases to the reserve
account contribution rate.
• This typically requires a
regular increase to the HOA
dues. Annually would be
most fair to the current and
future members of the
Develop a Financial Strategy
• Determine Future Costs
• Determine Future Replacement Cycles
• Review Reserve Account Balance(s)
• Review Reserve Account Allocation Rates
• Assessments, Loans, High Rate of Delinquent Dues, Etc.
• Determine Current & Future Reserve Fund Strength (Percent
• Is it adequate? Is it in line with the Association’s risk tolerance?
Considerations for the Recommended
Does the funding plan follow principles outlined in National
Reserve Study Standards (CAI)
Is the funding plan fair to the current and future membership
of the community.
Can the funding plan be implemented without reliance on
special assessments and loans.
Does the funding plan adhere to Statutory Requirements
Considerations for Special
A S S S S
M E N TE
• Planning to utilize special assessments for
expected costs goes again National Reserve Study
• Special Assessments penalize future members for
past members lack of planning and not paying
their fair share to the reserve account
• Special assessments have their place – typically
emergency funding for unexpected costs.
Numerous Funding Plans Provided
There are many funding strategies to consider but typically only a few will be
appropriate for the community and included in the Reserve Study.
Funding Plan - Developed
The Recommended Funding Plan will guide the community towards a
higher “Percent Funded” while being realistic and fiscally responsible.
Minimize Reserve Contributions
Properly Maintain Components
Complete maintenance of components on schedule to maximize the useful life of the common area components. This could include asphalt
sealcoating , clearing out the gutters, annual roof inspection & repair, touch up paint between larger paint cycles and carpet cleaning. A longer
component useful life equals less deterioration to the component annually and a lower corresponding reserve contribution will be necessary.
No Double Dipping
Review the budget to make sure the Association is not paying for items out of the operating account and setting aside reserves in the
reserve account for the same project. This is considered double dipping and is not appropriate or fair to the membership of the
community. An items should either be a reserve component or be paid from the operating budget, not both.
Interest Bearing Bank Account
Open a reserve account which maximizes bank account interest rates. As the reserve account grow to more significant levels consider
investing a portion in very low risk government back securities.
Utilize the Cash Flow Method.
This Cash Flow method is appropriate for most communities and allows the funding balance to increase more gradually while keeping
reserve contributions lower than a more conservative Component (Straight-line) method.
Avoid These Common Mistakes to
Prevent Missing the Target
1. Relying on loans first – typically loan will cost double the amount of adequate
planning or special assessing. After a loan the community will be in the
position of paying off a loan debt and trying to improve their funding level.
2. Deferring replacement & repair projects – costs go up with time and the
deferred maintenance of the project may lead to much larger problems to
other components. Additionally the marketability of homes in the
community is reduced as Buyers are very wary of communities with deferred
3. Incorrectly correlating the percent funded barometer in the reserve study
with the reserve contribution rate. Depositing 50% of the recommended
reserve contribution rate does not equate to a 50% funded level over time.
Communities that do so will deplete the reserve account balance in a short
period of time.
4. Doing Nothing! Deterioration to common areas works against a reserve
budget 24/7 – 365 days a year. The expenditures will happen whether a
community plans for them or not. The most responsible, cheapest and fair
ways to deal with them is to adequately plan for them years in advance.
Do you have
??Joel L Tax, PRA
Professional Reserve Analyst
Ph: 866-574-5115 ext. 704
Learn more at www.rdanorthwest.com