A timeshare resort’s reserve fund consists of money set aside over a period of years for refurbishment, repair, or replacement of major building components and systems at pre-determined intervals (or sooner, if a disaster or catastrophic failure intervenes).
Gary Porter, chief executive officer of reserve-study preparation firm Facilities Advisors International, LLC (FAI), explained that a reserve study is a budget, not a maintenance plan or an engineering study. “It should be the financial reflection of your maintenance plan,” he said, “but many associations don’t have a formal maintenance plan, so the reserve study becomes the closest thing that exists to a maintenance plan.”
Porter said a resort’s board of directors should set its own policies related to reserves. “If you don’t set policies, I do,” he declared, “and that may not be what you want.” FAI’s website contains a detailed discussion of reserve policies, and links to model reserve policies that a board can adopt or adapt to its specific needs.
For example, he said, many resorts don’t include in their reserve study “unseen components” such as domestic water pipes, wastewater plumbing, gas lines, and electrical systems. Replacement of such items often prompts special assessments, which he advocates avoiding if at all possible. If a special assessment has to occur, “taking out a loan gives you a way to spread the special assessment out so it’s not too painful,” he said.
Better yet, boards should set aside funds for such unseen components — and also for unscheduled disasters that upset the normal timeline of reserve-fund collections and expenditures. When such unforeseen events occur, “you reset the clock to zero,” he said, “and reset the master price as component prices change.”
Porter urged resorts to increase maintenance fees every year to keep pace with rising costs, and to maintain the funding level of the reserves. “The rule of thumb is 70 percent funding,” he said, “but watch out for peak expenditure events.” These occur in years seven, 14, and 21 for unit interiors, and in years 28 through 30 for the parking lot, painting, and roof replacement.
Gary Porter, Facilities Advisors International https://www.reservestudyusa.com/