Condo Budgets and Reserves For Replacement
As I trotted through this neighborhood in Bonita Bay, I snapped a picture of what “reserves for replacement” buys condo owners. That quarterly condo fee not only includes basic maintenance such as lawn service, pool service, upkeep of security lighting and such, it also includes small amounts that go into reserves or reserves for replacements.
What is reserves for replacement cover? There are a few large ticket items that the reserves savings is meant to cover such as roof replacement, parking lot/street replacement and swimming pool replacement or resurfacing. Instead of condominium home owners being hit with a surprise, large special assessment when the roofs are in need of replacing, there is a savings built up over the life of the roof specifically to cover the expense of roof replacement.
Reserves for replacement are a very important item when a buyer is looking to finance a condominium purchase, as well. With the finance climate in the condition it is currently in, lenders are asking for more money down (loan to value) to balance the risk they feel financing a condo exposes them to. When a consumer decides to purchase a condo and finance it, the lender will send a condo questionnaire to the homeowner association. One of the many questions asked is what is the balance of the reserves. The lenders, in an effort to reduce their risk should the condominium complex be in the stage of life where significant repairs to the common areas are warranted.
If you’re interested in seeing the sorts of questions asked regarding condo questionnaires and reserves for replacement, take a look at this .pdf: An actual Condominium Questionnaire.