Periodically we are asked if we use the “straight line funding” or “cash flow funding” calculation method. The question is typically posed by someone with strong feelings on the matter, not simple curiosity. But “straight line funding” or “cash flow” is not an informative or revealing question,
There are four ways to pay for your Reserve expenses. The first way even provides you with a bit of magic – getting a “rich uncle” to help you with your Reserve expenses!
An excuse has been defined as “the skin of a reason stuffed with a lie”. In the process of preparing over 30,000 Reserve Studies for Associations across the country over a period of 26 years, there are two Boardmember sentiments we hear most frequently expressed: “We can’t afford the Reserve Funding Plan” and “We’ll worry about that next year”.
This is a very common question and the idea of “Percent Funded” is still confusing to many associations. So before we answer the question, let’s define what it means to be 100% funded.
To be 100% funded means as of a particular point in time the Association has Reserve funds on hand exactly equal to the deterioration of its Reserve components. It does NOT mean that the Association has 100% of the funds needed to repair and replace all the components in the Reserve Study.
Why put more money into your Reserve Fund than necessary? I can’t think of a good reason! You don’t want to make Reserve contributions that err on the side of being too little, that may lead your Association toward a Special Assessment, borrowing, or the even higher costs that come with deferred maintenance.
Special Assessments are the typical unwanted consequence when an Association is surprised by significant expenses that are larger, or earlier, than expected.
