Reserve Funding Isn’t a Math Problem

This interview was based on a recent LinkedIn post from Michelle Baldry.

YouTube: https://youtu.be/IzXnCaRJ2sw

In her post, Michelle Baldry, PE, PRA, RS as Chair of the Foundation for Community Association Research’s Best Practices shared insights from a national reserve funding survey that highlighted a key issue: many communities aren’t underfunded due to lack of awareness, but because of how difficult these decisions are to communicate and implement.

LinkedIn Post: https://www.linkedin.com/posts/michelle-baldry_communityassociationresearch-hoa-reservefunding-activity-7432468970303033344-2kjj?utm_source=share&utm_medium=member_desktop&rcm=ACoAAA1xftoBOhA1qKbJiwA4J9SAeYTF83ToYHI

Reserve funding isn’t a math problem, it’s a communication problem.

In this discussion, we cover:

- Why 64% say communication—not numbers—is the biggest challenge

- What boards understand… but struggle to convey to homeowners

- How reserve studies are evolving into risk mitigation tools

- Why lenders and insurers are paying closer attention

- Common mistakes when presenting funding plan

Practical ways to position reserves so communities understand the long-term impact

This video builds directly on Michelle’s original post, turning the data into real-world application for community association managers and board members.

If you’ve ever had pushback on reserves, delayed funding decisions, or struggled to explain the “why” behind increases, this is worth your time.

Panel:

Michelle Baldry, PE, PRA, RS • Reserve Advisors, Inc. • mbaldry@reserveadvisors.com • www.reserveadvisors.com

Raymond Dickey • www.AssociationHelpNow.com

Hosted by AssociationHelpNow® | Practical insights for managers and boards who live this every day.

This content does not constitute professional advice.

#HOA #CondoLiving #CommunityAssociations #PropertyManagement #ReserveStudies #HOABoard #FinancialPlanning #RiskManagement #SpecialAssessments #AssociationManagement

Transcript

SPEAKER_00 0:00

Hi, Michelle. Thanks for being here.

SPEAKER_01 0:02

Yeah, happy to be here. Thanks for having me, Ray.

SPEAKER_00 0:05

All right. You had a great LinkedIn post. I'll include the link in the description. Reserve funding challenge isn't the math, it's communication. Did I make that title up or was that title in your LinkedIn post? I can't remember.

SPEAKER_01 0:20

I was chairing the best practice guide, FCAR's best practice, reserve study best practice guide report. And uh as part of it, we prepared a survey and uh just to gain feedback on the market and how everyone feels about reserves and reserve studies and ways that we can enhance uh the service that we provide. And I did a lot of reflecting and decided I wanted to put a post out there in hopes that it would resonate with some.

SPEAKER_00 0:49

So I love the reports you get from the Foundation of Community Association Research. What is it, research committee? Research, I forgot. What's it what's it exactly called?

SPEAKER_01 0:58

Community Association Research, FCAR.

SPEAKER_00 1:01

I love getting that stuff. I really do. I love statistics and things like that. Okay, so let's hit up some of the stats. 30% of communities report being less than 50% funded.

SPEAKER_01 1:13

Yeah, so we wanted to gauge where our industry is at and just get an understanding of how prevalent that is when you are getting studies. How often are you following them? And it was uh disappointing to see that that was the highest percentage. It staggers down from that. 20% or so felt that they were properly funded for the major components, structural, mechanical, uh, electrical is how they described it. And then another 20% felt that they were properly funded for everything. Um, so just really disappointing to see the where we're at, I guess, as an industry with funding our reserves. Were you polling from CI members? We were, well, yes and no, predominantly. The so the way the foundation, for the most part, uh where they get their information from, is from members. Uh, so for these surveys, we call them SNAP surveys. Uh, it is, it's polling members. We we broadcast it. So uh people could forward it on to people that aren't members and they can complete the survey, but for the most part, it is uh serve CAI members that are obtaining the survey and then responding to it. Uh, they do a couple of publications that are um not member driven, like the um homeowner satisfaction survey that is independently done by another third-party company, and uh they do poll random homeowners so that we are truly getting a wide uh perspective, not just from members.

SPEAKER_00 2:48

That's I'm surprised it's low also, because typically people that are in CAI are very much uh committed to education and committed to doing things properly, right? That's why they're there and that's why they so if this is for the CI members, which I think are a high standard, I can't imagine it's probably much lower for you know out there otherwise. Would you kind of agree or disagree?

SPEAKER_01 3:12

I almost said it and I bit my tongue because I didn't want to be too doom and gloom, but you're exactly right. I mean, you got to think people that are involved in CAI and then not only involved, but take the time to complete the surveys are like the upper echelon and the most involved. And so that's also what made these numbers so disappointing is that it is a reflection of where like the cream of the crop is at right now.

SPEAKER_00 3:36

That's exactly what I was thinking when I saw it. Because I know from my live streams, it's the same, the same story. Most people that listen are committed to doing a great job. So they're kind of the cream of the crop. Okay. 80 or any education, not just my live streams. 82% say aging infrastructure is impacting planning decisions. And that seems like an obvious one, right?

SPEAKER_01 3:56

Yeah, it was. It was okay. So are you how are you reacting? Is it when something fails? Because it's, you know, your building's 200 years old and now the foundation is starting to crumble or the pipes are starting to fail because it's 60, 80 years old. And that was, I guess, not a surprising fact, um, but interesting to see nonetheless.

SPEAKER_00 4:17

But how are the other 18% not also saying that aging infrastructure is a pack, you know, I guess they don't have any infrastructure?

SPEAKER_01 4:27

Communities where they're they're not experiencing that just yet. You know, they were built the last five, 10, even 20 years old. It's not as big of an emergency for them. It's still certainly something they should plan for. If it's a 20-year-old community, by the time the study's done, your community would be 50 years. So you should start planning for some of those long-term components. Um, but it's not impacting their planning decisions because they're still relatively young.

SPEAKER_00 4:53

I hate to be a Debbie Downer, but I think that should be 100% in an ideal world. Am I wrong?

SPEAKER_01 4:59

You said it, not me. I mean, you're right. That's why I believe about it, right? I try not to be too doom and gloom, but we have to acknowledge where we are and work together to figure out a path forward.

SPEAKER_00 5:09

Oh, I'm yeah, I'm not criticizing either, though, because like I said, I do believe that the people that answered this poll are the cream of the crop and they're a way ahead of the game. Do you know what I mean? So totally 40% have had a lender or insurer request their reserves, the reserve study. What'd you think of this one?

SPEAKER_01 5:28

I honestly was surprised by that one because we'll hear it from time to time. We'll get a call from uh a real estate agent and say, hey, we have a unit for sale in this community and a buyer can't get approved because they want to see a copy of the reserve study. Can you send it over? Or they don't have one on file. Can you create a rush reserve study because we really need it and don't want to hold up this sale? Uh or an association will say, Yeah, we also need one for insurance. Our um carrier or our broker wants to see a copy of our reserve study. We'll hear these stories from time to time, but I had no idea it was that high. I mean, 40% is a high number, in my opinion. Um in this, I don't want to jump too far ahead, but this is where what led me to say that this is a risk mitigation tool, right? Others are looking at these reserve studies to understand, okay, do I want to lend uh to this homeowner, own this unit when potentially they'll be hit with a special assessment because they're not properly funding? Or do I want to insure this building, knowing that they're drastically underfunded, unlikely to keep up with their payers, probably gonna have claims, right? It really has um become a risk assessment and tool.

SPEAKER_00 6:47

I'm surprised the opposite. I'm surprised it's not higher because I'm constantly interviewing insurance companies and and banks, and I feel like they're asking for these things like left and right. Um why do you think I would have a a different viewpoint on that? Um, you're much much more in touch with you know what's going on out there than I would be in my world. Why isn't everybody asking for it? Why wouldn't you if you were a bank or an insurance company? Right? It's such an important tool.

SPEAKER_01 7:19

I I think it's a growing trend. I don't think that um banks or insurance companies quite understood what the reserve study is and how they can leverage it. I had a call with a carrier, an insurance carrier, that said, hey, I heard this thing about a reserve study, and that I really should be looking at it to help understand the status of the community, that there are some 60-year-old condos that are actually properly funded and maybe we should be giving them lower rates. Can you walk me through what a reserve study is and how I can leverage it? Um, so I think it really is awareness to what we do. And you know, I know everyone's tired of hearing about serveside, but I think that's really what kind of brought such awareness around it.

SPEAKER_00 8:04

You know what I just realized? Do you think it's because the insurance companies and the banks I deal with specialize in the HOA industry? And maybe these people are working with companies that don't, so they don't know they don't know enough to ask about it. Do you think that's possible? Because that could explain it.

SPEAKER_01 8:18

Great point. That's a wonderful point. Yeah, if you call it State Farm, they're not going to know to ask about it, right?

SPEAKER_00 8:25

I I feel like you and I could just figure out everything that's going on out in the world. Okay, maybe we should branch out to non-HOA issues. All right, so the next one is 64% say that their biggest challenge is communicating funding needs. Can you explain this one to me?

SPEAKER_01 8:42

Like yeah, and this honestly, I've been wondering about this since I got into the industry. When I first started preparing reserve studies 16 years ago, I'd work with uh clients that we had updated regularly for them. Uh, our company's been around for 35 years. So, you know, there's clients that we've had for a very long time. And we'd update and the funding would be exactly as it was when we last worked with them. And I said, what are they doing? Like, why are they doing they're choosing to do these studies and then they're choosing not to follow them? And of course, it's just gonna get worse and worse the longer you defer these things. And um, the more I've been around it, I see they they're the board wants to do the right thing more often than not, they're a fiduciary. They acknowledge that a reserve study is good awareness of where they're at financially and a good strategic planning tool. Um, but they struggle to convince the homeowners of the importance, right? They understand it, but can you get everyone else to understand it, especially when you're saying, and you got to pay for it, right? That's that's tough. So I think the more that homeowners, if they realized, if not now, then at some point you're going to have to. Special assessment, we're gonna have to take out a loan. You're not gonna be able to sell your unit because this association is so underfunded, they would be more inclined to do it, as opposed to that response that we'd heard time and time again. What do I care? I won't be around when that happens.

SPEAKER_00 10:16

Yeah, we just did a live stream this morning where we did a whole hour on like communicating assessments, and this is like very similar. And the lesson learned here is lean on your professionals for this. Like even many of the attorneys said that they're more than happy to help out with a little bit of public relations in a way. You know, make these items into a story, right? So you just don't hit everybody up that you need a reserve study on Monday, maybe the week before talking. I'm exaggerating the time frame, but maybe talk a little bit about reserve studies are to kind of soften people up a little bit. Do you agree?

SPEAKER_01 10:47

Totally agree. I tell our clients that all the time is bring in, even ones that aren't our client, is ask your reserve specialist to come in. We're happy to do that. We do that day in and day out. These managers or volunteer board members are expected to be experts in everything, right? And this is just one little sliver of what they do, but this is all that I do. So I can speak about it all day. So you tell me, do you want me to talk five minutes, high-level overview? Do you want me to be on there for an hour and explain it from top to bottom? We are more than happy to do that. Um, and because of that, like this, but this being such an issue and why we put this in the survey, we wanted to understand is this really like, is this just an assumption that I have, or is there some validity to it? And so we built a whole section in the reserve study best practice guide on how to communicate the reserve study. When you receive it as a board and as a manager, what should you do? Where should you be checking? How should you leverage the reserve study? What questions should you ask? Once when you decide how you're going to implement it, what should you do next steps? How do you convince the homeowners? We put a whole section in there. And me as a reserve specialist, I'm not the best person to do it. I can say, I'm happy to explain it to you, but what does that look like for you? So we actually had managers and board members develop that section. Like we work together.

SPEAKER_00 12:06

That's awesome. I mean, I think sometimes we don't spend enough time thinking about public relations and what we do. We just assume that we're going to go out there and tell the truth and tell people what they're supposed to do and they're going to catch on and they're going to do it. But sometimes I think you have to kind of build up to it and tell a little bit of a story. The other thing is having someone like you come in is so such an advantage because you can read the crowd. You're just going to read the crowd so much better than the average board member or manager in regard to reserve study presentations, like how far to take it. Like you just mentioned, right? Is it 15 minutes or is it an hour? I assume, Michelle, you're going to know. You're going to read that room. Do you am I right or wrong?

SPEAKER_01 12:43

Or totally, or we'll plan accordingly, right? Like we've even done just last week, we did an annual meeting for a client. We did the reserve study three years ago, and they're not ready to update it yet, but they're still struggling to convince the homeowners of the need to follow the funding. And it was again just education on what reserves are, how underfunded they are, what's going to happen if they continue down this path. Um, so we can really cover a variety of things, just whether it's just what is the reserve account, or do you want to go line by line in that reserve study?

SPEAKER_00 13:17

I just don't understand boards. Why take it on yourself when you can have somebody like Michelle come in and do it for you? So um, two quick points that I thought were interesting. It's no longer just best practice, it's increasingly viewed as risk mitigation. I'm sure I picked that up from your post. The other one was using our reserve study to guide decisions. I know, sorry, you were pointing out, are we using a reserve study to guide decisions or are we just reacting? What did you mean in regard to this one in particular?

SPEAKER_01 13:48

Yeah, for that one, I mean, the reserve study, we say it all the time, it's a planning tool, it's not a crystal ball. I don't claim that we are going to get it right exactly right every single time, right? However, it is based on experience of doing these, and so it is a pretty sound opinion on it, right? So using the example of you have a clubhouse with an HVAC system, if the reserve study anticipates that it needs to be replaced next year, it's probably because it's at a certain age or certain conditions were reported with it, or we saw something, right? So if it doesn't fail when you get to next year, by all means, don't replace it just because the reserve study says so. So January 1, don't pick up the phone and order a new HVAC unit. However, get it looked at. You know, have your HVAC company look at, evaluate it, and say, yep, nope, you're good. You should plan on X. Or yeah, this is what's going to happen. It could be any day now, right? Don't just say, nope, it's working, it's fine, we don't need to do anything. And then all of a sudden it fails, and then parts aren't available, and then your clubhouse is out of commission for the entire summer.

SPEAKER_00 14:57

Didn't I just see something in here about risk mitigation? That's all about what risk mitigation is. Am I wrong? Planning for something that may or may not happen.

SPEAKER_01 15:05

That's right. That's right.

SPEAKER_00 15:07

Um, really quick.

SPEAKER_01 15:09

I meant we ready to question to come up with that, right? Work with the respective fields, whether it's in, you know, an HAC specialist, a structural engineer for a retaining wall, whatever the case may be, bring in those experts so that you do have a solid path um for how to anticipate these projects.

SPEAKER_00 15:29

Or maybe they just want you to come in, Michelle. All right, so really quick, how do you sell it? Just go over the basics. I think we've done it, but let's just let you review it.

SPEAKER_01 15:40

Ask questions first, right? Make sure that you understand it as board, as management, make sure that you understand what the reserve study says. If there's any discrepancies, maybe the reserve balance was slightly off, or you have a planned project uh upcoming that wasn't properly captured, get all of that tweaked, right? Get it to where you are 100% comfortable with it. Work through what that means for you. Are we going to immediately phase reserves where we need them to be or where they should be next year? Are we going to ramp it up? What's a reasonable path for us as the board, the elected decision makers of the community? What do we want to do? Then bring, get run it by your reserve specialist, make sure that it is a sound approach, then bring us in. Let's collaborate together. Let's present those findings to the homeowners. Let's explain what reserves are. Let's explain the limitations of what reserves are for. It's not a rainy day fund, right? When you're hit with a ton of snow removal that we weren't planning on, that is not what reserves are for. It is for things we know you're gonna need to do. Help kind of break that down, um, explain the importance, and then ultimately get them to understand the long-term path too, right? That$5 a month might sound bad, and I'm not minimizing that, but that's a cup of coffee, right? So it's either that or it's a$15,000 special assessment in a few years. It's got to come from somewhere, and this is the most proactive way to do it.

SPEAKER_00 17:11

I just think people should absolutely bring in the reserve specialist to sell it because why would a board take on that responsibility? That way, too, everybody's in the same boat together. It's not the board telling the community and taking full responsibility for it. I understand the board is responsible, but if the reserve specialist comes in and everybody hears it together, there's gonna be a lot less of this blame the board routine down the road if you know if there becomes any situation like that. Do you am I wrong or am I right?

SPEAKER_01 17:38

You're exactly right, especially because the reserve specialists, we have no skin in the game. I have no vested interest, right? Like I'm not gonna also do this work. So I'm not saying you need to replace your groups or repave your streets, and I want the opportunity to do that work. I have no vested interest. You're paying me for a true third-party opinion on the most proactive way to maintain the community.

SPEAKER_00 17:59

All right. I want to thank you for being here. It's a great post. If depending on when this goes out, I'll put a couple of links in there for everybody. And uh thanks a lot, Michelle. And I love that foundation uh stuff. I love the data they send out, it's absolutely terrific. Thank you.

SPEAKER_01 18:13

Yes, I always call it the hidden gem uh for our industry. There's just such a wealth of information.