CAI-NJ Dec. 2018 (w)

RESERVE STUDY... from page 52.

Figure 1

Part 1: Is the component a com- mon element for which the Association is responsible for its replacement? This is generally based on the community’s governing documents. Part 2: Does the component have a limited useful life? In most instances the guideline in selecting components is based on a 30 year projection from the time that the study is prepared. It is therefore critical when updating the study to add any components which now fall within the 30 year time window from the date of the study preparation. Part 3: Does the component have a predictable useful life? This is based on the age of the component as well as its condition. Part 4: Minimum Threshold Cost. In many instances associations may replace common area components from their ongoing operating bud- get up to a certain cost amount. These components, if replaced from the operating budget, should not also be funded through the Reserve Study. Another consideration would also be funding through other bud- getary areas such as a maintenance contract. The key is to make sure that the replacement costs are only funded in one place and not dupli- cated. The Financial Analysis The Financial Analysis is comprised of the Funding Plan and Fund Status. A Funding Plan is the association’s plan to provide income to a reserve

Figure 2

(right) This shows one component with a replacement cost of $9,000 and a Useful Life of 20 years at which time it is replaced and funding begins again.

(above) Theis shows all of the communitys components as individual components which are then added together. This example does not include a beginning balance which is typical of a new association where replacement funds have not yet been collected.

(right) This now results in a combined cash

flow projection as shown above of all components added together and is the basis for the Funding Plans.

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