Reserve or Assess?
Some co-ops and condos do assessments specifically to build or replenish a reserve fund. Others do assessments to pay for specific capital projects. And still others favor a gradually built-up reserve fund to have in, well, reserve for capital improvements or emergencies. Those in favor of assessing only for specific capital projects feel that current residents should not have to pay for possible future projects that they may or may not be there to enjoy. Conversely, those in favor of a gradually built-up reserve fund feel it is less of a burden to increase common charges a small amount and accumulate a comfortable reserve over time.
I take the latter position. Since that decision was made we have established a seven-figure reserve that we add to annually. The test of that decision came in 2004.
The building was now over 15 years old and was showing its age. The board decided in early 2004 to renovate all of the hallways, including with new carpeting, wallpaper and paint. After the project was put out for bid, we found that the cost would be in the mid-six-figure range. The entire project was paid for with our reserves, no assessment.
A Capital Idea
A few years later, we decided to renovate the lobby. Although not as big a project as the hallways it was in the low six-figure range, again paid for without the need for an assessment. We recently renovated the reception area in our health club with new furniture, carpeting, and wall treatments. Guess what? No assessment. We are now in the process of replacing our main water-supply riser, and as part of that project replacing a hot-water system that has plagued us for some time. It was funded thorough our capital reserves.
Since we add to our reserves regularly, the account is still in the seven figures. I have no doubt that if we had to assess our residents for any one of these projects there would have been an uproar.
The experience at The Alfred has served me well. In 1998, I sold my primary residence on Long Island and moved to a gated community, also on Long Island. Since it was a new community established as a homeowners association (HOA), the developer controlled the board until a stipulated percentage of the homes and villas were sold.
Since I was the type to always be involved, I became one of two residents that served on the first board with the developer and when the HOA took over the board I became its first treasurer. I applied what I learned at The Alfred and immediately included a deposit to a newly established reserve account as part of the common charges. I’m sure this will prove to be a sound decision in the future. After a break from the HOA board I came back as its treasurer in 2008, and I’m happy to see that the small reserve I started in 1998 has grown to a comfortable cushion.