Reserve Funding – It’s Not About the Future!

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One of the biggest misconceptions about Reserve funding I hear, even more than “they’re too much” or “we can’t afford them” (which I’ll address in another post), is that they are for the future. Reserve funding is not for the future. Reserve funding offsets ongoing, day to day, current deterioration.

Reserve funding offsets the current deterioration that is occurring each month while the current owners are enjoying those assets. The owners using these assets should pay for their use. It’s only fair. If every owner pays their fair share of deterioration, on an ongoing basis, the future takes care of itself. While the actual Reserve expenses are in the future, those expenses arose due to slow and steady deterioration that occurred on a daily, weekly, and monthly basis, very predictably, often in plain sight, for years.

Reserve funding is not charity for future owners. The ongoing cost of Reserve deterioration is as real as any other bill the association faces. Set your association up for success by making appropriately sized Reserve transfers that pay the “deterioration bill” on an ongoing basis. If you do that, when the “balloon payment” for that gradually growing obligation occurs, everyone who “used up” that component will have paid their fair share, and the funds will be available for the expenditure. Don’t leave future owners with the bills you left unpaid!