Utilizing Technology in Reserve Management: Tools and Best Practices

Robert Nordlund 00:07
Thank you, Kali and hello everyone. Welcome to our program on utilizing technology and reserve management. We prepare reserve studies throughout the year, and Lisa and her team at HOA invest are working with reserve funds throughout the year, and as we’re recording this, we realize it’s the fall, so it’s budget time of year, and that often puts a lot of stress on our clients. It’s a busy time. They’re working with the regular things that go on at an association, plus they’re trying to figure out what’s the right thing to do with respect to budgets and assessments, and those are additional stressors at this time of year. So we felt it was appropriate to give you a little bit of hope that next year it can be a little bit better. So we wanted to give you some ideas of some more recent technology that we see in the industry that we have touched and we’re aware of that will help you have a more successful experience next year as you’re working on your budget. Now, if you’re already aware of these things, fantastic. If you’re already taking advantage of these things, fantastic. But we want to use this platform our regular webinar programs, to let our clients know what’s out there and to make sure you are able to take advantage of the best that the industry has to offer. This is the outline of the program we’ll do today. I’m going to start with a little bit of introduction to make sure we’re all on the same page. Then Lisa will talk about managing a reserve fund, and that’s a novel concept that she and HOA invest bring to the industry, and I’ll spend a few moments talking about something that we launched back in 2019, 2020, timeframe, a new tool that helps you with your association. Then I’ll bring it to a conclusion at the end, after which we’ll have a little bit of time for Q and A so as we go through today’s program, I want to make sure you know it’s all about risk. You have different choices to make. The future is unknown, so we need to make our best decisions now so we can set a great platform for that future. We want to make good decisions now about the present. And board members are primarily the ones responsible for the care of the common areas on behalf of the homeowners. Now, of course, managers help, and they assist the board in implementing their policies, taking care of the numbers, those kinds of things, but we understand the burden that board members carry, and we want to make sure we’re doing everything to make the decision point smooth and clear for you. And again, there’s huge expenses in the future. As I look at this, I realize I have a duplicate on my list, but big expenses, they’re all going to happen. Roofs, elevator modernization, painting, decks, asphalt, pool resurfacing, carpet replacement, all those kinds of things are going to happen. It’s all going to happen because Mother Nature and Father Time are constantly tearing down, breaking down, wearing out your common area, assets. It’s just a function of time, so your best strategy is to put up a steady fight so that deterioration doesn’t get the upper hand, and that means you need to prepare. You need to be diligent on an ongoing basis. But the question is, are you setting aside enough dollars on an ongoing basis to arm your association to prepare them for these big projects that are yet to come? And remember, you’re arming them against the ongoing daily deterioration. It’s not singular cost events in the future. It’s driven by a daily deterioration that as common as the sand that falls through an hourglass as I talk about it. I want to make sure we make the point that reserves are not a savings account for some future possible projects, something nice to have. Reserves are indeed essential to prepare your association and its members for the predictable, expensive projects that are too large to handle when they appear. It’s the oxygen that your association runs on, you need to be funding reserves to be prepared so you don’t get knocked down with a big punch when the roof needs to be replaced, you want to look and see, oh, yeah, we are, we are ready and prudent. Responsible reserve planning is also essential in order to comply with governing documents and state law requirements. So it’s not just something that you are encouraged to do. There’s some real responsibility issues there, and we want to make it clear that owning real estate is expensive. You may have heard that community association living is theoretically care. Free, and it may be great to have the association take care of providing a pool, a clubhouse, the elevator, the trash removal, all those kinds of things, but Community Association living is anything but free because those common areas don’t take care of themselves, and it’s the board members who bear the responsibility for good results or consequences from bad results. So with all this, the challenge of doing this, the basic fundamental nature that being a board member is hard and being a manager is hard. How can you see the future, and we wanted to look at now compared to 10 years ago. And one good thing is there’s National Reserve safety standards. Every few years, they’re updated. They were last updated in 2023 they’re a little bit better. They guide our industry better. And technology is always, as you know, changing, and there’s great things that we can take advantage of. And so today we’re going to talk about two of those things. And so at this point in time, I’m going to turn you over to Lisa Beaty. We’ll tell you about the great service and tool that HOA invest has to make managing your reserve funds a little bit easier than they were five or 10 years ago. Lisa, yes, thank you,

Lisa Beaty 06:23
Robert and colleague, for having having us today, or having myself on your in this meeting today. It’s a pleasure being here, and thank you to everyone who’s attending. My name is Lisa Beaty with HOA invest and we have been managing HOA for about 1617, years now, the portion of our business that has grown is the technology side. So like Robert had mentioned, we’ve created a we’ve solved a problem for boards and managers alike to help manage reserve funds. And everyone throughout our firm is very passionate about this, and we understand that the HOA reserve investing space has kind of been ignored for a long time and still is, and we’d like to change that. So how we do that are three pillars that we focus on to help reserve investing so you as board volunteers are actually liable. So you’re liable on how the money is invested, what it’s invested in, and if it’s being mismanaged or not invested at all, which we see often, we see a lot of idle cash on the sidelines, because there is something that cane do, no one has the knowledge as to how to invest it or reinvest it, and so we’re trying to bridge that gap for all of our Hoa is number one with safety. We have to make sure these funds are safe. Principle has to be protected. We use three different vehicles for investing that are allowable within HOA. HOA reserve investing, in addition to liquidity. So within these safe investments, we have to make sure that the assets are liquid for a lot of these unforeseen repairs and asphalt paving, elevators, whatever that may come come about within your community, and then third return or yield. So when we talk about yield, it’s using these safe, liquid investments and trying to maximize yield so that your reserve funds can grow. You’re not trying to raise HOA dues, and you’re trying to avoid huge special assessments. Of course, some of sometimes it’s unavoidable, but us at HOA invest, we are not a bank. So a lot of reserve accounts are with banks. They have CDs. They either roll over or don’t they’re not invested. We are not a bank. We are an investment company who clears through Charles Schwab, which means that we are a fiduciary, as are you as board members. So what a fiduciary means is we serve our HOA. You are our clients. We must act in the best interest of all of our communities. So you are our clients. We work for you with the availability of Charles Schwab, which is what we hold, everything inside of we have a y array of investments, including CDs, treasuries and Treasury backed money markets, of which we use for HOA to maximize that yield and that Safety. So us as your professional look into what our inventory is and try to choose the best investment for our HOA reserves. And we also work nationwide, so we understand different laws and regulations from state to state. So how we do this is we have a software. We’ve developed. It is, it is specific to us. HOA invest no one else is using and it helps boards in communities have full transparency of their reserves, meaning we reach out to you, let you know something’s coming due. We get your approval. We store all these documents in one place, and the boards and community managers can then log into Hoa, invest and pull statements. We integrate with accounting software to make your monthly reports easier. And again, that transparency factor, we want you to know what’s going on. Again, our job is I’m going to re emphasize the safety liquidity and yield or Return. What that means is the investments, treasuries, money market and CDs. CDs are protected by FDIC insurance, up to 250,000 each institution and Treasuries are backed by the US government, a very safe investment up to an unlimited amount. So they’ve been around since the Great Depression, a very safe investments for individuals, for reserve funds, so on, so forth. So all of these are, are we’re trying to optimize your growth on your account while taking these factors into consideration. So a couple of problems that we solve, and I can’t emphasize the safety factor enough, is avoiding idle cash. So when you talk about maximizing your interest or your your yield, we want to make sure that there’s there’s not $1 of idle cash sitting in your reserve account that can cost you two to 5% a year if you just have cash sitting there for six to nine months. Everything that we invest in, again, is backed by us, government, FDIC, very, very safe. Once a week, we also send out a rate sheet to our clients so you can compare what we’re offering or what’s available to us through Charles Schwab, we don’t charge any commissions or markups. We have a flat fee of point eight, 0% that’s deducted quarterly on an average balance. So for that fee, we manage all of the reserve funds for you, navigate the market, navigate interest rates and choose the best possible security to grow your reserves. So in addition to the safety, we take into consideration your reserve study. So like Robert said, your reserves are essential. We want to make sure that we are aligning our laddered or our maturity schedule with your expenses. So we take your reserve study and we look through it, we analyze it, we make sure that what we’re doing is in conjunction with your reserve study and with the software, the HOA invest software, again, transparency boards and community managers or accounting, whoever you’d like to have access. We don’t recommend your entire community, but the board and the community managers is essential to keep that transparency as far as what your reserves are invested in, what your statements are, what your fees are, and then making sure that it is in fact invested. We obtain the signatures so we take the liability off the board. You hired us to help navigate this for you, in addition to take the liability off of you as a board member trying to navigate investing. So we capture the signatures with everything, with DocuSign, and we get the recommendation approved, and we store it for you. So if you ever want to go back and say, what were we doing, this is you come to Hoa invest, and you have one place to come see all of these important documents, including your reserve study, of which we can upload. So it’s very simple with HOA invest from start to finish, from account, opening, reviewing your reserve study, and then building a feasible ladder that will work with what your timeline is. It’s extremely easy for us to help you do this, and we try to take a lot of the legwork off of you and your community manager, in addition to your whoever’s doing the processing, the accounting and the compliance factor. Again, it’s extremely important that you understand we we make sure that your community is compliant with investing. So in addition, we will review all of this with you whenever you want. Generally, we review it quarterly or monthly. We provide reports monthly. They’re called fixed income reports, extremely helpful to see what your yield is, what your return is, especially in budget seizing season. So we issue these fixed income reports once a month, send them out to whoever would like to view them. We can review them with you, and then you have an idea of what you’re actually earning, and you can plan ahead for the next year and beyond. And again, we are not a bank, so we do not require six. Signature cards, our wet signatures, we use DocuSign for everything. So technology has come a long way, as we’re discussing today, it can be very, very helpful in managing your reserves. So just like your community, you wouldn’t want to go out and fix up everybody’s front yard on your own or or paint the fence. That’s not your job. You as a volunteer, are trying to lead the community and help it thrive. So we’re actually your partner, or we work for you to help you do that. We want you to we don’t want you to have to do the heavy lifting. We will do that for you, because we have been doing this such a long time. We understand where, when we have to navigate interest rates when we have to switch from treasuries to CDs, CDs to treasuries and again, one other aspect of treasuries I want to bring up too, because a lot of people don’t know they can use them, is they are state tax free. So in California, an association pays 8.84%

Lisa Beaty 15:58
on interest earned with treasuries you do not you do with CDs. So we try to utilize each of these together to make sure that we’re maximizing that return. And how we do that with the volume of HOA. Is that we have? Is we? We have the HOA invest. We have the fully robust software of which you can log in and see exactly what we’re recommending, what your timeline is. You can look at your reserve study, pull it back up, or you can look at for a report that we create for you, to kind of give you an idea of why we’ve recommended a certain ladder or a certain investment. So again, I really want to emphasize too, that we work for you. And with HOA invest, every community has a an advisor. They have direct contact with either phone, email or both. And I don’t like to put this out there all the time, but we work a lot of times seven days a week, because we are working with a lot of boards that have meetings on the weekend. So again, trying to navigate that risk for you as volunteers, as board members, is tough, and we try to take that off of you, or take the liability off of you as trying to manage reserves and transfer it to us, and that’s what our service provides. Our boards are very happy with what we’ve been able to do, the amount of reserves that they’ve that have grown, and in addition, the transparency of our reporting is extremely important to most of our boards. So our job is to help you navigate this. Take the risk off, choose the best Securities and Investments that that will maximize your return and you can focus on your community, and with fantastic, yeah, like, I’ll lead it back to

Robert Nordlund 17:44
Robert. Lisa, I’m again, just sitting here taking notes, and you’re just hitting so many buttons. I was thinking, why we created Association reserves so long ago? And it was because I was a board member, and I was trying to figure out, what do I do now with respect to budgeting, to take care of the property. How much do we need to set aside? And for all these years that we’ve been having this reserve side company, we’ve told our clients to put their money in interest bearing accounts, not their checking account, and get some interest, because every dollar of interest is $1 less that your homeowner have to set aside. And they said, well, what’s the right thing to do? And we said, that’s that’s not our area of expertise, but to see HOA invest become a prominent player in our industry, and to so clearly and quickly be able to be the person that it’s so easy to go to to find out, what do I do now to have someone on your team who takes that burden off of you just a wonderful thing. And so I look at this, and I think it’s the police. I think you said it at the very beginning. It’s a problem that we solve and what’s a board member to do. And we just love seeing HOA invest making a real market penetration, serving associations here in the community, association industry. Thank

Lisa Beaty 19:04
you, Robert, yeah. And I think another aspect of this is the power of the compounding. So again, our associations have been very happy with with when they see the compounding interest that they’ve been able to earn. So thank you very much. And I appreciate everyone’s time.

Robert Nordlund 19:20
Yeah, isn’t compounding interest supposed to be like the eighth wonder of the world,

Lisa Beaty 19:26
exactly the power of 72 There

Robert Nordlund 19:28
we go. That’ll be the next webinar. Change gears now and talk about managing your reserve study. How much do you need to set aside? And it’s, again, all about risk. It’s complicated. So many questions come our way. How do they know what will happen 20 years from now? How they know how much things cost? What if we can’t afford what they want us to do? What if we haven’t saved enough in reserves and we don’t have enough cash when we need it? What if our reserve studies or reserve funding is not required in our state? Should we do we still? We need to do that. Having so lots of questions, lots of concern. And one question I can answer real quickly is, what do I look for? What’s the reserve study even give me? Well, a reserve study is a perishable document. It’s a budget guide, so it has an effective date for one year. It’ll tell you what level of service and our regular webinar participants will know that there’s full reserve studies. There’s update with site visit, there’s update no site visit. It’ll provide a list of the component projects, these expenditures, that you need to prepare for, and then an evaluation of your reserve fund size with whatever reserves you have in the bank. Should you feel good about that, or should you feel Hoa, we don’t have enough. And then, based on that starting point, we recommend a multi year funding plan to get you from now into the future, because we don’t want you to be at a board meeting or an annual meeting in the future and have the treasurer or the President say, well, we’ve got a roof project coming up, and we wish we had more money than we do. We want you to have enough dollars to perform your major repair and replacement projects in a timely manner. We don’t want you having plastic up on your roof. We don’t want your carpet being threadbare and being a trip hazard. We want having the right thing at the right time, and that comes from making wise choices. We don’t want you to become like the cartoon here Aspen Creek condos, where even the sun on the logo of this association has a five o’clock shadow. We don’t want your association to become like this. It’s all about the decisions you make. So let’s talk about your reserve. Say, now what if we want to move it or change it? Well, if there’s anything wrong with it, go directly back to your reserve. Say, professional and ask for it to be revised or corrected the date that your roof was last replaced. If you told us 2015 and it really was 2017, great. We love getting that information. But what if you want to find out more? What if you want to move something around, or maybe stretch a useful life, or maybe you found another CD that you forgot about? What can you do then? And that’s what we have this tool for we developed it in the 2019, 2020, timeframe. We call it uPlanIt, and it’s available to our client. And let me now step away from the PowerPoint and take you to uPlanOt you care about. Going to our reserve study, going to our website, reserve study.com, and in the upper right, you’ll see a link to our Client Center. And just like logging into HOA invest or your bank or whatever you log into regularly, this is the view that a portfolio manager would see. It’s their list of properties with Association reserves. If you’re a board member at your association, you’d be presented with your property. So I’m going to click on the SoCal town homes. It’s a simple property, easy to show what’s going on, and it comes up to your reserve study document. And then you can control the user access. You can add some other people, we call them privileged users, or you can add some other people that are definitely have view capabilities. And then we get to uPlanIt, and uPlanit it is literally your reserve study come alive. Here’s the component list that we talked about. This is a town home Association. You can see the asphalt stucco and metal fence, wood trim, siding, painting. They have a spa and they have a roof, and this is their component. The control panel is where you set things like, what year is it? Starting balance, after tax, interest rate, things like that. And then the recommendations page, where you see how it all comes together. And this is live information, so you can see here that they are starting at about 50% funded. They have some significant expenses that sag them down, but then they rebound. They have a nice steady reserve funding plan over the years that stabilizes them up near the 100% funded level. This is a fully funded profile look at the expenses, and you can see, yes, in this first few year, they have a couple of big expense years, I noticed here on the control panel that they start with about 100,000 in reserves. They’re getting 3% interest. Great. That probably means they’re actively earning about 4% It and after tax, it’s net. After Tax is about 3% so good for them. And I would just want to show you what this can do here. For instance, this has a little special assessment in the first year to provide them just a little bit of cash margin. And if you want to find out as a manager or board member. What’s it look like without that special investment type? Zero? Calculate. You can see that it just barely nips at zero. You’ve got a couple years. And so you can see why that special investment is there. And maybe you say, well, we probably could have tolerated $1,000 special assessment that was only 400 so let’s see if we can do 16,800 $800 so yeah, that’s a little bit good. People were dreading $1,000 special assessment. We can tell them it’s not going to be that bad. And look, with that special assessment, we’re a little over 100% lines. We can dial it back and what do you say? How about we try 2150 and recalculate that little low, maybe 20. And this is exactly what you can do. You could say, how do we work with our reverse study and customize it? When I buy a dress jacket, I usually buy it off the rack, and then I have it tailored. I like having it fit me. And this is what you can do with your reserve. Study, I want to show you a couple other things here and on the control panel. Let’s say you were just having your funds sit at your local bank, getting money market funds, and maybe your after tax interest is about 1% so save that and go over back to the recommendations page. I’m going to write this down. We were at 2175 and clearly that no longer a full funding profile. How much we’re going to have to increase it to get back to full funding. I’m going to increase it 50 bucks a month to 2225 that’s not going to cut it. How about 2275

Robert Nordlund 27:28
next 100 bucks a month, still not cut it. Only 300 100. We’re talking $25 more per month. Hoa, okay, I’m not gonna do all my guessing on your time, but clearly it’s gonna be maybe 150 more bucks per month times 12 months is 80. Is 12, is 1800 so better part of two grand. So that shows you that it’s worth making a phone call. It’s worth looking at a somewhere that you’re going to get more interest, because that saves your homeowners a couple $1,000 a year. Easy thing, and then it’s pretty easy here to work with your reserve components. Let’s say that we are here in October now, and rather than doing the asphalt sealing in 2026 you’ve said, Oh, we’re wrong, Robert, we already engaged with someone, and we’re going to get that done in November this year. So that will be done as of 2024 and let’s find something else here. Let’s talk about the stucco. Same thing. Let’s get that stucco and the wood trim on here in 2025 late 2025 rather than pushing it into 2026 and so that’s going to minimize the first two years of expenses, rather than wait. And let’s see what happens. And again, this is all live. So we’ve done a few things here, and we can rebalance what is happening at the Association. I think I’ve done three line items here, pushing the stucco out, pushing the wood trim out, getting that done, and if that was all paid for, we can still start at the same $99,000 and then you say, okay, we can probably really reduce our reserve funding. And there we go, something like that. That’s pretty close. Maybe we increase the funding one and a half percent. Yeah, boy, it had practice anyway. This is what you can do with uPLanit. You can play with your numbers and find out how it fits your association. Let’s get back to the PowerPoint if you want. uPlanit it come free with every professional reserve study from Association reserves. It’s user friendly. You saw how easy it is to work. All calculations are per National Reserve based standards. If you’re not an association reserves client or a lapsed client, prior client, $399 a year. It’s pretty darn simple. Looking at the clock, it’s time to bring this program to conclusion. So quick day here tools for success. We can offer some tools, but it’s still up to you. Set a budget to offset the ongoing cost of deterioration. Collect those funds. You need a good collection process, unless the help of an investment professional to make sure you’re maximizing what do we learn, safety, liquidity and return? Perform those projects in a timely manner so you don’t have deferred maintenance problems. Understand or customize your multi year reserve plan and regularly consult with your local credential, reserve site, professional, when you have questions about why it is the way it is, and to get it updated. And the great thing is, the new technology helps you succeed. You can get help of an expert financial professional who does it, does this all the time, all throughout the year, and they can help you make sure you’re making the best decisions, and they can actually take care of that for you. And we have this tool. It’s free for our clients, you can test all your what if scenario and make that reserve plan yours, because, as we said earlier, owning and maintaining real estate is expensive. Typically, we find our clients need to set aside about a quarter of their budget towards reserve funding. That’s a significant amount. We appreciate that. And if you’re well below that, we know that it may take a few steps in order to get there, but your reserve safety professional is going to guide you there, and your investment professional is going to help make sure that your money’s safe along the way. So Lisa, any closing comments regarding HOA invest,

Lisa Beaty 32:31
I invite anybody who’s interested to reach out if you’d like to get have some navigation of the site and see what exactly we offer. It is a pretty robust software, as is Robert. So anybody that’s interested, please reach out and we’re happy to answer any questions. Fantastic.

Robert Nordlund 32:52
On behalf of association, reserve, we can be found@reservesday.com lot of resources there. You can request a free proposal at the top right corner of our homepage, you can find articles and videos. There also plenty of videos on YouTube, where this will be posted in about a week. We also have a book for those of you who like documentation. It’s called Understanding reserves. It’s available on Amazon for 29.99 and I’ll put a link to chapter one in the outline, as well as a link to a great article, a free little ebook about navigating inflation and investment strategy guides for HOA reserve funds that’ll be in the outline also. And our final free offer is a weekly 30 minute podcast for board members. It’s designed to encourage and equip all the board members in the hard work they do, leading their association and, by extension, carrying the entire community, association industry on their shoulders. You can find it from all major podcast platforms, where you can listen from Hoa insights.org, or also on our YouTube channel, great resource there for you to help in running your association. And at this point in time, I’ll turn the microphone over to Kali, who will coordinate our Q and A time together. You