There are many, many things in a condo that reserves pay for-elevators, roof(s), fire systems, sprinkler systems, water boilers, structural elements, and on and on depending on the condo. Here’s where this gets complicated quickly. You’d want to allocate $5 a year to reserves so that in 20 years when you need a new roof, voila, you have $100 ready to pay for your new roof. The engineers tell you that your current roof will last 20 years.
Say your building has a roof in good condition. The rate of savings should budgeted for based on the life expectancy of the systems they will replace. At their core, reserves are savings for long-term capital costs for big, critical systems. Reserves are by far the trickiest part of a condo association finances. A luxury condo is expected to spend more on such perks than a regular condo. In my opinion, every condo should be prioritizing maintenance costs, but your amenities will vary widely based on your building. This is fairly straightforward and about what you’d expect, although boards can run into situations where they need to cut costs for popular amenities when times are lean. It also includes amenities costs like contracts for taking care of pools, tennis courts, and other goodies. Operating expenses are the day-to-day expenses of running a condo-salaries for staff, cleaning costs, regular maintenance, etc. The bulk of your income is going to come from the owners, but these other sources are definitely worth pursuing if your location can support them. Examples of other revenue sources are renting out commercial space (if your building has it), renting parking spots (if your association owns extras), leasing of cell phone towers (either on the roof or on the property) or revenue sharing from things like bike pools or carshares. Depending on the size and location of your building, you may also generate income from other sources. Income is primarily derived from “assessments,” otherwise known as condo fees. On the other hand, if you run too much of a deficit, you’re likely underfunding reserves, which means your association won’t have the money to pay for key big-ticket items, like fire systems and roofs. The goal of every condo is to have income exceeding expenses and reserves, but not by too much, or you’re overcharging the owners. There are three things that are the core of condo finances: income, operating expenses, and reserves. Time for a quick and dirty lesson on condo association finances. This post was republished with permission from.