Reserve Fund

I think the reserve fun amount is reasonable at $600K unless the 100 units we're talking about are all 8 room apartments and not usual mix of studios, one and two bed units. If it is depleted during capital improvements, the board will no doubt seek to replenish the fund since that is the prudent thing to do. This means either an upcoming special assessment that will be levied or a maintenance increase (or whatever you call it for a condo--'common charges'?). 3%/year sounds low to me for this economy and increased costs of fuel/labor over past few years. I'd say 5% is minimum I'd expect and up to 10%/year is more like it.

We have $600K in a reserve fund for our 50-unit prewar co-op, with all improvements up to date, and even we don't think that's enough.

Walk away from this one.

Some boards like to keep a hefty reserve.

Other boards like to keep a low reserve and then assess or borrow (if a co-op) when necessary. Their idea is that the shareowners can invest the money better than the board can.

Don't know which is the better tack or where $300K or $600K falls. The remaining $300K should be enough to cover most things.

Its really helpful to hear all this, thank you! Keep the comments coming! A 5% to 10% increased in maint. seems like alot, that would certainly make us reconsider the purchase. But it sounds like $300k wouldn't be a horrible reserve fund?

300K for a 100-unit building -- especially if it has an elevator -- is bordering on "horrible", yes.

general rule when I went to classes on this in 2005 was to have a minimum of 4 months operating expenses in reserves. So if everyone defaults, the bldg has 4 months of reserves to operate from. Clearly, you will want more but that is the rule I was told to determine boundary

the amount of misinformation here is astonishing...particuarly from our sleezy friend matt.

commenting on the reserve fund absent knowing other numbers is like saying a companies payables are too high without considering the entire balance sheet.

what is the underlying mortgage on the building....is there an untapped LOC available....what does the financial and maintenance history look like?

Building doesn't have a morgage any more, but am waiting for the full financials to be sent to us to see exactly what the history is. I know they had an operating surplus in 2006/2007 of $312k, but a loss in 2007/2008 of $196k. Urbandigs, thanks for the stat from your classes, always good to know what the standard is. Clearly its desirable to have more, and am finding out what the operating costs are to determine if it meets this and by how much.

If the only way this unit makes sense to you is with no more than 3% increase in charges a year, then this is not a unit you can risk purchasing. While 3% may be desireable, you have to be able to absord and find tolerable 5-10% for a couple of years. Otherwise, what are you going to do? Predicate your financial stability on 'hope' that increases hold at 3%? Things really shouldn't be this financially borderline for you when purchasing a place.

Columbia, we're speaking in generalities.

Here's a quarter. Go buy yourself a clue.

We just had our annual shareholders meeting and our accountant gave us his opinion on reserves. Basically it all depends on how much work the building will need over the next few years. The normal range is $2,000 to $5,000 per unit. Obviously if the building aesthetics are in bad shape (hallways, lobby), the boiler or roof needs to be replaced, or if are about to go through their Local Law 11 work then its better to be at the upper end of this range. Basically the main issue with a small reserve is if the building needs work and cannot finance through other means (such as taking equity out of its mortgage) then shareholders are assessed.

Kylewest- you make some good points. I think that in this enviroment we're more concerned about stretching ourselves thus the hesitancy. Indeed the purchase would be a strech for us, but we can afford it based on our current saleries. I would just be concerned that the maint would go up (currently $1,600 a month plus taxes, so kinda high) by a crazy amount due to the reserve fund not being well funded, and then we would be struggling on a monthly basis. Anyone- any ideas on an average reserve fund for a condo with 100 units & full services?

Getting out- thats really helpful. So we're looking at a reserve fund that should be about $500k at the least assuming we're being conservative.

The condo I used to live in had two separate funds, each funded on a monthly basis from the CCs:
--capital reserves
--contingency reserves for operating deficits

I like them being thought of as entirely separate funds, so one doesn't cannibalize the other.

My condo building with 150 units has a reserve fund of about 750k. We are planning a renovation through use of assessments to improve the lobby and hallways. I think the projections are that the reserve will end up dropping to about 400k and then the goal will be to get it back up to the 800k range over the course of a few years. The building has very low common charges, is "full service" (doorman, tiny gym, etc.) but def not lux. Hope this helps.

I've always understood that a condo can't borrow, while a co-op can. Is that still the case, or was it ever?

If so, then a condo would need to worry more about keeping the reserve fund funded from CCs, right? Assuming that both condo and co-op would want to avoid assessments.

here's the rub with the reserve fund..as noted above, once its used (partially or fully) there is great impetus to replenish so while you may get a little more time to pay out vs. straight assessment, you're likely to be paying either way. a building can easily go through $1 to $2 million capital renovations particularly if a lot of work has been deferred over the years. with a 100 units, obviously that can run between $10k and $20 K per unit. if you don't have the leeway to come up with that kind of money, i would steer clear.

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Thank you everyone for your comments, this is a great starting point for us its appreciated.

gg, it is never - NEVER - a good time to stretch financially & you KNOW that costs will only continue to increase. Find yourself a more modest place that you love so that you can live comfortably within your means.