Strategy for Factoring Inflation into a Reserve Study in a Rapidly Changing Economic Environment
Why does your Reserve Study include 3% inflation long term when CPI is > 8% and some Construction Indexes are using inflation rates of over 20%?
Why are Interest and Inflation Important?
Interest earnings bring income to the association that inflation takes away. But do they offset each other? Well first, it helps to understand the difference between the two.
Straight Line vs Cash Flow Reserve Funding
The scope & schedule of an Association’s reserve expenses are defined in the Reserve Study’s Component List. But once the Component List has been established, should the Reserve contributions necessary to fund those expenses be calculated using the “Straight Line” Method (officially called the Component Method) or the “Cash Flow” Method (sometimes called the “Pooled” Method)?
Funding Plans and Accuracy
Someone who attended one of our recent webinars asked an interesting follow-up question worth sharing. His association manager had recently told him that a Funding Plan based on the Straight Line methodology (also known as the Component Method in National Reserve Study Standard terminology) was more accurate than a Funding Plan based on the Cash Flow methodology, and he wanted my opinion on the matter.
What Should Our Reserve Contributions Be?
Skimping on Reserve Contributions Doesn’t Save you any Money!
What’s better – $50/mo Reserve contributions (as part of your condo’s total monthly assessment) or $70/mo? All other things being equal, I’d rather pay a $50 monthly bill than a $70 monthly bill. But… not all other things are equal.