This transcript features Robert Nordlund, an expert in association reserves, discussing the critical importance of Reserve Studies and funding for Homeowners Associations (HOAs).
Below is a structured summary and analysis of the key concepts presented in the webin
1. The Core Challenge: Mother Nature vs. Your Budget
The central theme is that deterioration is a bill that must be paid. Many boards treat reserve funding as optional, but Nordlund argues it is an inevitable expense driven by “Mother Nature and Father Time.”
- Ongoing Deterioration: Components (roofs, asphalt, fences) don’t fail suddenly; they wear out a little bit every day.
- The Hourglass Metaphor: Think of deterioration like sand falling through an hourglass. It is a smooth, constant process, not a series of scattered future events.
- The Responsibility: Boards are tasked with maintaining common areas. Ignoring this doesn’t make the cost go away; it just shifts the burden to future owners or results in “special assessments” (emergency lump-sum charges).
2. What is a Reserve Study?
A Reserve Study is a tool used to identify the “monthly bill” of deterioration. It consists of three primary parts:
| Component | Purpose | Key Elements |
| Component List | What are we saving for? | Project description, useful life, remaining life, and current cost. |
| Fund Strength | Do we have enough? | Calculation of Percent Funded (comparing cash vs. deterioration). |
| Funding Plan | Where do we go from here? | A multi-year plan to ensure enough cash is available for future projects. |
The Three Types of Studies
- Full: A “from scratch” inventory and measurement of all assets.
- Update (With Site Visit): A professional visually inspects assets to see if they are wearing out faster or slower than expected. (Recommended every 3 years).
- Update (No Site Visit): A budget-focused update to account for inflation and interest rates.
3. Measuring Success: Percent Funded
Nordlund emphasizes that the total dollar amount in the bank is less important than the Percent Funded metric.
- 0% – 30% Funded: High risk of special assessments and deferred maintenance.
- 30% – 70% Funded: Medium risk.
- 70% – 100% Funded: Strong position; the association has enough cash to handle projects on time.
Key Takeaway: Reserve funding typically accounts for 15% to 40% of an association’s total budget. If you are only setting aside 5%, you are likely underfunding.
4. Recommendations for HOA Boards
Nordlund provides a shift in perspective for board members to improve the health of their communities:
- Stop calling them “contributions”: A “contribution” sounds optional (like a charity). Use terms like “reserve funding” or “reserve obligation.”
- Avoid “Low Assessments” as a Goal: Prioritizing the lowest possible monthly fee is a “destructive goal” that leads to crumbling infrastructure and lower property values.
- Pay the Bills on Time: Performing maintenance when scheduled (e.g., painting wood before it rots) is significantly cheaper than waiting until you need to replace the entire structure.
Summary of Action Steps
- Update your Reserve Study at least every three years with a site visit.
- Set the budget based on the actual cost of deterioration, not what is “comfortable.”
- Execute projects on time to avoid “scope creep” and higher repair costs.
Would you like me to help you draft a memo to homeowners explaining why a reserve increase might be necessary based on these principles?
