When it comes to the reserve study board members have this belief that it's just a tool that can be ignored. If that were the case then the Declaration is just a tool that can be ignored. Right. Wrong. In most cases the Declaration does require adequate reserve funds. To know what is adequate you have to have a professional reserve study completed. If you have to follow on you have to follow both.
If board members understood the reserve study then they would realize how dumb it would be to not follow it. It is more than just a list of expenses. It's telling us the value of our dollars and how to make the most of them. A reserve study is actually designed very very intelligently. It takes every item and the present day cost then inflates it until the year it is to be replaced, then divides that number by the remaining years and that item will accumulate that much money until the year it's to be replaced. This way everyone who used or had the ability to use the item pays their share of its replacement. This keeps the owners who have the misfortune of owning a home in the community at the time it is to be replaced from paying all of the expense.
But, here is what the reserve study is telling us that we don't seem to listen to. It is telling us the buying power of our dollar. The average inflation rate has been 3% per year for as long as I can remember. This means to most people that prices increased on average 3%. That is one way to look at it. Another way to look at it is what used to cost me $1.00 now costs me $1.03. But, that is if you look at inflation as if it were year to year. Inflation is accumulative meaning the zero point or the point where $1.00 was $1.00 was 1913 not the previous year. $1.00 in 1913 is equal to $22.57 in 2011, or the total accumulative inflation rate since 1913 is 2257% . Let's say that half a tank of gas in 1913 only cost $1.00 whereas today it costs $22.57. Now let's reverse it and we find that in 2011 current month what $1.00 will purchase say a soda would have only cost .04 in 1913. This means for every $1.00 spend today in 1913 would have only cost 4 cents. 96 cents of every dollar spent today is the result of inflation. Spend 100,000.00 today and $95,569.82 is attributed to inflation. Meaning our buying power has dwindled so much that spending $100,000.00 today is actually equal to spending only $4,430.18 in 1913.
Now lets see what happens to putting something off by 2 or 3 years. If you have a project set to be done in 2008, and the cost was estimated in 2006 for $150,000.00. But, it put off by 2 or 3 years that projects costs if done using reputable contractors who do it right without cutting corners. In 2008, the project would have cost $160,195.68, but it was put off and still has not been done. It will cost at least $166,270.09. Inflation alone increased the cost by 10,000.00 from 2006 to 2008 then another $6,000.00 because it was put off. What is it that board members think they are saving by not performing scheduled replacements? Reserve funds cannot remain adequate when they delay replacements and cut corners to cover up the fact they screwed up. The value of $1.00 in 1913 to 1923, was $1.73; from 1913 to 1933 was 1.31, in 1943, was 1.75; in 1953 was 2.70; 1963 was 3.09; 1973 was $4.48; 1983 was 10.06; 1993 14.60; 2003 18.59; and 2011 is $22.57. This is the total cumulative inflation every 10 years since 1913 when the government began to track it.
It's easy to see that events such as Wars and Depressions didn't effect inflation near as badly as the events of the last 15 years have effected inflation. We were better off with uneducated leaders and staying out of a global market than we are now. Let's hope our HOA board members stop following the lead of our federal government. Don't procrastinate because prices aren't going to come down. Get what ever you can for the dollars you have currently. Just don't waste the dollars you have on things that will die or doesn't have a life of 20 or 30 years or more. This doesn't mean be irresponsible either it means do what you need to do even if you think you don't have the money. If your reserve fund is running low go ahead and do it just don't spend all of it or leave yourself without an emergency fund. Be smart!
Banks are going to have to reinvent themselves but they want to change the currency instead. Force the banks to reinvent themselves or they will not find themselves in business anymore.
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