Worry about it later?
November 2014

Welcome to our November 2014 newsletter edition. This month we discuss the choice of including or excluding components in a Reserve Fund Study, in particular those with an expected long life. We have also shared a few website links regarding condominiums.

As always, we appreciate your questions and comments.

Ernie Paustian
Ernie Paustian

Worry about it later?

Reserve Fund Planners are given flexibility when completing Reserve Fund Studies, particularly, the exclusion of components that fall outside of the 25-year study period. For example, if new concrete walks and driveways were estimated to have an economic life of 40 years, some reserve fund planners exclude the component from the study until at least 15 years of wear have accumulated. (40 year life expectancy – 15 years of wear = 25 year study period).

Their thinking is that the components can initially be ignored because the 25 year period for the accumulation of reserve funds are continually shifting; as studies are revised every 5 years. Eventually the excluded component will “fall” within the study period.

Using this logic, there is no need to start saving right away – as by the time the component is incorporated in the shifting study period, there will still be 25 years to save. While it’s true that the planning horizon is continually shifting, is completely ignoring components outside the 25 year term reasonable, or short-sighted?

Reserve fund planning involves a long range financial plan, one that should be fair and equitable, not just for the owners of today, but also for owners 5, 10, 20 or more years into the future. As components wear every year, would it be reasonable for all owners to make a contribution for a portion of that wear on a yearly basis? More importantly, the math suggests this is a reasonable conclusion.

As promised, a few condominium related links – starting with a report indicating that maybe they haven’t built too many condominiums.

Five tips for containing condominium disputes.

Try to resolve matters without legal proceedings.

There are laws on strata management.

Thank you for taking the time to read our newsletter. Delta Appraisal Corporation is a boutique consulting services firm with a focus on Reserve Fund Studies in Alberta and Depreciation Reports in British Columbia. We work with Property Managers and Board Members to set realistic budgets and to prioritize maintenance and repair projects. Our functional Reserve Fund Studies are unbiased as we are not competitors in property management or maintenance.

For more information about Delta Appraisal and our easy to read Reserve Fund Studies or to request a no-cost, no-obligation proposal, please contact us.

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