CAI-NJ Dec. 2018 (w)

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The Reserve Study By Mitchell H. Frumkin, PE, RS, President, Kipcon Inc.

O ne of the primary business duties of community asso- ciations is maintaining and preserving the property values of their common property. To do this properly, associations should have a Reserve Study prepared which includes a funding plan for the replacement of major common area components. The study is a budget planning tool that includes both a Physical and a Financial Analysis. The basis for the preparation of a Reserve Study are outlined within the National Reserve Study Standards of the Community Associations Institute. These standards were initially released in 1995 and just in the past year updated and rereleased. There are many benefits to having a Reserve Study done. First, it meets legal, fiduciary and in some areas the statutory and banking requirements. It

provides for the planned replacement of major items that must, at some point in time, be replaced. It minimizes the need for special assessments or borrowing while at the same time helping to main- tain the community’s property value. A Reserve Study is divided into two parts as can be seen in the graphic above. Following is a description of the Physical and Financial Analysis portions of the study. The Physical Analysis The Physical Analysis is com- prised of the Component Inventory,

Condition Assessment and the Life and Valuation Estimates. Figure 1 (on page 54) is an example of what this may look like. While all reserve study presentations are different this is an example of the information which should be included. Selecting the Components The most critical part of the study is the Component Inventory as it is the basis for the entire Study. In selecting which components to include a 4 Part Test is used. CONT I NU E S ON PAGE 54

Graphs this article courtesy CAI-NJ.

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