HOA Reserve Funds

E

eytonxav

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Joined
Sep 25, 2003
Messages
7,586
Location
DFW
For those living in HOA communities, does your HOA invest reserve funds in anything other than saving type accounts to preserve capital and liquidity?
 
My HOA invests in certificates of deposit and money market funds, in addition to regular bank accounts. That's as fancy as we get.
 
DFW_M5 said:
For those living in HOA communities, does your HOA invest reserve funds in anything other than saving type accounts to preserve capital and liquidity?
Click to expand...

Oh man...I can see where this is going already.

A bit over 20 years ago, when we were in our townhome, it was around the time of the 2000 bubble. At some point prior to the crash, the board sent around a letter that they wanted to invest some portion of the reserves with some advisor and were going to have the association have a vote on it. Now, I had been the treasurer at my first condo about 10 years earlier, and I knew that you do not put the HOA money in to anything other than cash equivalents. Cash, CD, MM. These fools at the townhouse association were off their rockers. I first went online to the CAI forum...still early internet days. CAI is the Community Associations Institute which is the authority when it comes to associations, and most HOAs are members. I posted a question regarding this, and everyone was of the exact same mindset - you do not put those HOA funds in anything that is not cash or cash equivalent. You don't gamble in the market.

So, I went to the next board meeting and raised my concerns. I advised them that I believed they were not fulfilling their responsibilities as board members. They said their duty was to get better returns on the dormant money, and pointed to the association across the street who already did this and made XX%. I told them it didn't matter what anyone else did. Their treasurer started rambling some nonsense about CAI, and when I told him I already was in touch with CAI he turned 5 shades of red and went silent.

The president or secretary said they wouldn't have responsibility because they were going to have the association vote on it.

In the end, I don't remember what happened. We sold and moved to the home we're now in for the past 20 years.

If your association wants to gamble in the market, just be prepared that if it doesn't work out and at some point they need to do a special assessment.

CAI still maintains their forum and you can go there and post the question or sift through and see if it's already answered.
https://exchange.caionline.org/home


Go through your associations most recent reserve study and see what it says about where the reserve funds are going to be held and any assumptions made regarding returns...and then extrapolate about what it may mean if there are negative returns on those funds. Ask the board what their intent is, and what if there are negative returns. Or, positive returns. They certainly aren't going to lower your dues, are they?
 
Last edited:
No, we would not invest in anything other than a savings/MMA and/or laddered CDs. I am on a HOA board, but just wanted to see if others were using any vehicles other than savings. Our reserve account is at about $180K, but needs to get to $250 to be fully funded. The funds belong to the homeowners and cannot be invested like ones personal funds and further we do not know when they will need to be tapped for some unknown expense, so must be liquid and guaranteed. Probably the biggest risk might be taking some percent and laddering that amount in CDs over a two year period, wash and repeat.
 
Well that's good to hear.

I think best you can currently do is laddering the CDs. Won't make much, but it will be more than sitting in cash earning nothing. It's certainly not going to make up for the underfunding. Depending on the indicated life of the reserve items, and how large the nearest term ones are, you may need to do a special assessment.
 
njhowie said:
Well that's good to hear.

I think best you can currently do is laddering the CDs. Won't make much, but it will be more than sitting in cash earning nothing. It's certainly not going to make up for the underfunding. Depending on the indicated life of the reserve items, and how large the nearest term ones are, you may need to do a special assessment.
Click to expand...

No, nothing near term expected and most are long life infrastructure items, and we continue to put about $15K/year into reserve. What is getting tough is we have yard maintenance included in HOA annual fees as costs are going up, so we will be forced to increase our annual fee which has remained unchanged over past 8 years. The residents will be unhappy, but there is nothing more to cut from the budget other than reducing reserve contribution. Just went through bidding out common area/residental yard maintenance.
 
DFW_M5 said:
No, nothing near term expected and most are long life infrastructure items, and we continue to put about $15K/year into reserve. What is getting tough is we have yard maintenance included in HOA annual fees as costs are going up, so we will be forced to increase our annual fee which has remained unchanged over past 8 years. The residents will be unhappy, but there is nothing more to cut from the budget other than reducing reserve contribution. Just went through bidding out common area/residental yard maintenance.
Click to expand...


Understood. Having been on HOA board previously I can appreciate it. The other issue is that for owners looking to sell, buyers will be considering if HOA reserves are properly funded. If they see reserves are underfunded, it could deter qualified buyers and/or make sales somewhat more difficult.
 
njhowie said:
Understood. Having been on HOA board previously I can appreciate it. The other issue is that for owners looking to sell, buyers will be considering if HOA reserves are properly funded. If they see reserves are underfunded, it could deter qualified buyers and/or make sales somewhat more difficult.
Click to expand...

Our community is only 8 years old. We reduced some reserve funding in order to install a basketball court and playground, otherwise it would have been completely funded in 10 years. Unfortunately, the developer did not give us much to start with and we did not like their stewardship over the several years they controlled the board.
 
I was the treasurer of our HOA when some of our residents asked us to consider investing the HOA funds in stocks or bonds (roughly $1.3M) instead of losing ground to inflation by leaving the money in CDs and money market accounts. I did some research and found, as has been expressed here, that very few HOAs are willing to put the community's money at risk by investing.

Our board declined to deviate from past practice and reminded residents that preserving liquidity and guaranteeing the safety of principal was the HOA's primary duty.

Unexpected expenses and chronic underfunding are bigger threats to an HOA's reserves than inflation.
 
Austin704 said:
I was the treasurer of our HOA when some of our residents asked us to consider investing the HOA funds in stocks or bonds (roughly $1.3M) instead of losing ground to inflation by leaving the money in CDs and money market accounts. I did some research and found, as has been expressed here, that very few HOAs are willing to put the community's money at risk by investing.

Our board declined to deviate from past practice and reminded residents that preserving liquidity and guaranteeing the safety of principal was the HOA's primary duty.

Unexpected expenses and chronic underfunding are bigger threats to an HOA's reserves than inflation.
Click to expand...

That is right, and board members have a fiduciary responsibility to not put the communities reserve at risk. One of our board members does not realize this fundamental responsibility:facepalm:
 
njhowie said:
Oh man...I can see where this is going already.

A bit over 20 years ago, when we were in our townhome, it was around the time of the 2000 bubble. At some point prior to the crash, the board sent around a letter that they wanted to invest some portion of the reserves with some advisor and were going to have the association have a vote on it. Now, I had been the treasurer at my first condo about 10 years earlier, and I knew that you do not put the HOA money in to anything other than cash equivalents. Cash, CD, MM. These fools at the townhouse association were off their rockers. I first went online to the CAI forum...still early internet days. CAI is the Community Associations Institute which is the authority when it comes to associations, and most HOAs are members. I posted a question regarding this, and everyone was of the exact same mindset - you do not put those HOA funds in anything that is not cash or cash equivalent. You don't gamble in the market.

So, I went to the next board meeting and raised my concerns. I advised them that I believed they were not fulfilling their responsibilities as board members. They said their duty was to get better returns on the dormant money, and pointed to the association across the street who already did this and made XX%. I told them it didn't matter what anyone else did. Their treasurer started rambling some nonsense about CAI, and when I told him I already was in touch with CAI he turned 5 shades of red and went silent.

The president or secretary said they wouldn't have responsibility because they were going to have the association vote on it.

In the end, I don't remember what happened. We sold and moved to the home we're now in for the past 20 years.

If your association wants to gamble in the market, just be prepared that if it doesn't work out and at some point they need to do a special assessment.

CAI still maintains their forum and you can go there and post the question or sift through and see if it's already answered.
https://exchange.caionline.org/home


Go through your associations most recent reserve study and see what it says about where the reserve funds are going to be held and any assumptions made regarding returns...and then extrapolate about what it may mean if there are negative returns on those funds. Ask the board what their intent is, and what if there are negative returns. Or, positive returns. They certainly aren't going to lower your dues, are they?
Click to expand...

Yeah...no.

That's why HOAs also need to have D&O insurance.

Though in my experience, few do.
 
We have one very vocal homeowner in our community who insists that we shouldn’t even have a reserve fund. He thinks we should just pay as we go. 🤦🏼*♀️
 
Mine invests I think half of the reserve fund in something that is about 50/50 stocks/bonds. The other half is in cash / checking / savings. They've been doing this for maybe four or five years.

Ours is a very basic subdivision with very low expenses and amenities, so I can't imagine that there's anything expensive that would come up that the HOA would be obligated to pay for, so I don't see much of a risk.

I live in the subdivision but am not on the board.
 
Walt34 said:
Yeah, there's usually one or two of those. Selfish jerks.:mad:
Click to expand...

Oh ya. I live in a cooperative housing residence founded in 1959. The original shareholders had a pay as we go attitude. Of course, maintenance costs were low as it was new construction, only replacing roofing and painting the exterior. The shareholders were 'consuming' the asset. The first reserve study was about 15 years ago and it was flakey but at least it justified starting a reserve fund. Now our reserves are substantial but we are still playing catch-up. Replacing our single-pane windows is the next big expenditure.

Absolutely keep the reserves in cash equivalent.
 
ncbill said:
Yeah...no.

That's why HOAs also need to have D&O insurance.

Though in my experience, few do.
Click to expand...

I would never agree to serve on an HOA board without that coverage. Unfortunately, it's a crazy litigious world we live in.
 
pb4uski said:
Our docs require that reserves are invested in be FDIC insured accounts. I suppose we could also invest in full faith and credit instruments like Treasuries.
Click to expand...

Well, I checked and its along the line what I wrote before:

The depository of the Association in which the funds of the Association shall be deposited, shall be financial institutions authorized to do business in Florida which carry FDIC insurance or equivalent private insurance such as insurance placed through the Society Investor Protection Corporation (SIPC), as shall be designated by the Board of Directors. Altematively, the Association may deposit funds with brokerage houses or institutions which are members of the National Association of Securities Dealers, Inc. and insured by SIPC or equivalent industry insurance. Principal of association funds, whether reserves or operating funds, may not be placed at risk for investment purposes.
Click to expand...

So if principal can't be placed at risk, then I think that pretty much limits you to FDIC insurred accounts and full faith and credit bonds.
 
pb4uski said:
Well, I checked and its along the line what I wrote before:



So if principal can't be placed at risk, then I think that pretty much limits you to FDIC insurred accounts and full faith and credit bonds.
Click to expand...

It's a good idea for HOAs to establish an investment policy statement. We have not done that yet, but plan to do so.
 
Philliefan33 said:
We have one very vocal homeowner in our community who insists that we shouldn’t even have a reserve fund. He thinks we should just pay as we go. 🤦🏼*♀️
Click to expand...

We had one like that as well..."dissolve the reserve fund & return it to the homeowners."

Wanted just to do special assessments for anything not covered by the monthly dues...though those require a 30 day notice and 2/3 of the homeowners to approve.

And he was a retired CPA!
 
You must log in or register to reply here.

Similar threads

Teacher Terry
Your Experience on a HOA Board
2 3
Replies
54
Views
3K
NXR7
N
N
Tax Return or Form 990-N for HOA?
Replies
17
Views
729
pb4uski
pb4uski
S
HOA CDs - Which Financial Institution and How Does Your HOA manage?
2
Replies
35
Views
2K
Trooper
Trooper
J
Tax Return- jointly owned home but one deducts everything
Replies
8
Views
653
Montecfo
M
N
Reverse Mortgage
Replies
12
Views
826
jazz4cash
J

Latest posts

Back
Top Bottom