July 7, 2025 • 43 mins
Could one book for HOAs change the entire industry? Find out!
✅ Get the first chapter FREE of “Understanding Reserves” HERE 👉 https://bit.ly/44QjKwH
📘 Buy “Understanding Reserves” on Amazon 👉 https://a.co/d/b0jrTK7
What if one book could save your HOA thousands and prevent endless headaches? In this episode, Robert and guest Kevin Leonard get into “Understanding Reserves: A Guide To Your Association's Reserve Fund”, a must-read for anyone involved in a homeowners association. This book demystifies how HOAs should actually work. Learn how education, clarity, and simple tools can build better communities!
Three Purposes of the Reserve Study:
1. Display the Component List – the list of projects Reserves are being collected to perform. Note: the Component List is commonly referred to as the “foundation” of every Reserve Study, because the Financial Analysis is based on this list of expenses
2. Evaluation of Reserve Fund Strength (current cash on hand compared to the current $ of common area deterioration at the association)
3. Recommended multi-year Funding Plan to provide sufficient cash so Reserve Projects can be accomplished in a timely manner without reliance on supplemental loans or special assessments.
“Adequate Reserves” definition: A replacement reserve fund and stable and equitable multiyear funding plan that together provide for the reliable and timely execution of the association’s major repair and replacement projects without reliance on additional supplemental funding.
The views & opinions expressed in this program are those of the Hosts & Guests, intended to provide general education about the community association industry. The content is not intended to provide specific advice or recommendations for any individual or organization. Please seek advice from licensed professionals.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Kevin Leonard (00:00):
And most special assessments don't have a 100%
(00:05):
payment rate, meaning not allhomeowners pay their HOA due so
why would they pay a specialassessment? So special
assessments are not the easy fixthat some people may think it
is. It is much more appropriateto plan responsibly, budget
responsibly, and be able to,like California Civil Code says
(00:28):
to protect, maintain and enhancethe common areas of your
association.
Announcer (00:33):
HOA Insights is brought to you by five companies
that car (00:35):
Association Insights & Marketplace, Association
Reserves, Community Financials,HOA Invest and Kevin Davis
Insurance Services. You'll findlinks to their websites and
social media in the show notes.
Robert Nordlund (00:48):
Welcome back to HOA Insights
Common Areas. I'm RobertNordlund, and I'm here today for
episode number 113 forconversation with Kevin Leonard,
reserve specialist and one ofour key project managers here at
Association reserves, who's thedriving force behind our book
understanding reserves, itssecond edition was just
published, and I look forward tohaving the opportunity to hear
(01:09):
from Kevin in a few minutes, sohe can share all about the book
and how and why it's beenrevised. Well, last week's
episode number 112, was anotherof our board hero episodes,
appropriately titled Anunfortunate story. The truth is
that sometimes bad things happenat your association. And from
(01:29):
our perspective, we've seen thecycles that some associations go
through, some troubled yearsfollowed by some recovery or
turnaround years. So what I wantto say is neither good years or
bad, years are permanent. Thegood news is that we've already
recorded next week's episode 114so you can hear our follow up to
that episode 112 so stay tunedif you missed episode 112 and
(01:53):
don't know what I'm talkingabout or any other prior
episode, take a moment aftertoday's program to listen from
our podcast website, Hoainsights.org watch or watch on
our YouTube channel, but betteryet, subscribe from any of the
major podcast platforms so youdon't miss any future episodes.
And those of you watching onYouTube can see the HOA insights
(02:15):
mug that I have here. Let's seeif I get the focus. It's talking
about budgeting, one of myfavorite subjects, and you can
get a hold of that from ourmerch store, which you can
browse through from our Hoainsights.org website or the link
in the show notes, and you'llfind that we have some great
free stuff there, like boardmember zoom backgrounds and some
(02:37):
specialty items for sale, likethis mug. So go to the merch
store, download a free zoombackground, take a moment, look
around, find the mug you'd likeand email yet. Podcast at
reserves, a.com with your name,shipping address and mug choice
mentioning episode 113, muggiveaway, and if you're the 10th
(02:58):
person to email me, I'll shipthat mug to you free of charge.
Well, we enjoy hearing from youresponding to the issues you're
facing at your association. Soif you have a hot topic, a crazy
story or a question you'd likeus to address, you can contact
us at 805-203-3130, or email usat podcast at reserve study.com
(03:21):
now this episode was prompted byLynette from Knoxville, who
asked if we could do an episodeon reserve studies. And that was
actually a pretty easy ask,because I'm in the reserve say
business, and I think you knowthat. So we thought the best
response was to get Kevin on theprogram to talk about this great
(03:42):
resource we have. It's a nicedesktop reserve study answer
book called Understandingreserves. It's just been revised
and released in its secondedition. Got a copy here again
for the YouTube viewers. You cansee it's a nice paperback book,
and it's a great opportunity tohave Kevin on the show to tell
(04:03):
you all about it. So Kevin,welcome to the program. Thank
you, Robert, so glad to be here.
So tell me. When did the initialbook, the first edition, come
out?
Kevin Leonard (04:11):
The first book came out in early 2021 after
about a year and a half ofwriting and compiling the
material. And as you know, thematerial has been around since
since the early 1990s and wefinally were able to compile it
(04:33):
into a single resource that isdigestible for our board member
and manage your clients. Andsince 2021 I'm proud to say that
we've sold over 2000 copies ofthe book which is which is
amazing. And the response fromfrom readers has been more
(04:54):
incredible than I could I couldreally believe they are loving
the. Book. They are, they arefinally grasping this concept
that they've, they've, they'vebeen, they've been thinking
about for for so long. And a fewof my clients actually have the
book as required reading for anynew board members. So you get
(05:16):
elected to the board, and theirfirst, their first order of
business is to readunderstanding reserves, which I
think is, is fantastic. It maynot be necessary for every
Association across the country,but I think it's a valuable
resource. And clearly many, manyboards and associations think so
as well.
Robert Nordlund (05:36):
Yeah. Well, obviously we were hoping, when
you said the first thing, I wassaying, Well, maybe the second
thing, hopefully they read thegoverning documents first. But I
like it being up there. Kevin,I'm not sure if I told you, but
yes, for years and years, we'vehad training materials at
Association reserves,documentation, National Reserve
say standards came out in 1998and so there was those guiding
(06:00):
principles that shape theindustry. And still, and even to
this day, we have board membersasking, what are some very
fundamental questions. You know,we have a regular webinar
series, but when you said you'regoing to compile all this
information and put together ina book, I was actually pretty
nervous, like, Oh, gee. What isthis going to be a Franken book,
(06:22):
where it's a compilation ofarticles to different audiences
with different tones andtechnical things, and I read
your first draft with grittedteeth, and you had me by the
first chapter, and I just itJust, I was so relieved, right?
And you can read, yeah, goahead.
Kevin Leonard (06:44):
And you can tell by the the comments on on
Amazon, the comments underneaththe the Book link page, 99% of
them are five star, fantasticrecommendations and all that, I
got one negative response andtell me about that. And the
negative response was, this bookis too elementary. We need we
(07:08):
need more advanced topics. AndI'm thinking to myself, that is
the exact point of this book. Isdistilling the complexity of a
reserve study and reservefunding and make it as simple as
possible, so that anybody canread it and understand it and
and help guide theirassociations to a successful
(07:28):
financial future. So if that'sthe only negative comment I get,
I can live with that, yeah,
Robert Nordlund (07:33):
you've you've hit the bullseye, because that's
what you're trying to do. That'slike, Well, yeah, that you don't
have to concern yourself withthose kind of problems. Tell me
a little bit more. But your wifeis a published author. Was that
also a factor in you wanting toput this stuff together?
Kevin Leonard (07:50):
Absolutely. One of her books is called a far cry
from yesterday, and it's abouther travels around the world as
a 19 and 20 year old woman,which sounds fun, but to me, it
seems extremely reckless anddangerous, but it clearly has
shaped who she is as a person,and through that, she was able
(08:11):
to help me realize that I canreach a wider audience through a
different type of communication.
So our job as reservespecialists is again to help
guide associations into asuccessful financial future. And
by writing this book, I can help1000s of communities at a time
where as doing one reserve studyhelps helps one community. So I
(08:34):
understood, and I stillunderstand, that reserve studies
are an extremely niche category,like, if you're going into a
bookstore, I don't know, I don'teven know what category
understanding reserves would be,is it real estate? Is it
engineering? Is it budgeting? Isit prints? Is it business? You
(08:55):
could put it in any of thosecategories or none of those
categories. So I I was notexpecting to become a New York,
New York Times bestseller, andI'm okay with that. I'm fine
with that. I just wanted, yeah,I just wanted everyone to come
to the to the same understandingthat I had, which is reserve
(09:15):
funding and reserve planning isextremely important for the
millions of people that live incommunity associations. And so I
was able to put those words onpaper. And I'm not gonna lie,
man on my wife, she was able todo all the editing, formatting,
publishing with respect to theAmazon platform. And so, so, of
(09:37):
course, yes, she was a big help.
Robert Nordlund (09:41):
Yeah, but, and I'm glad you're not waiting for
Oprah to call, right? Becausewhat you're talking about is the
real deal that we're talkingabout, the opportunity with the
podcast to reach 1000s ofpeople, and the opportunity with
the book to reach 1000s ofpeople, and that's very
different from meetings. Someoneat Starbucks and having a chat
(10:02):
or doing a reserve say, for oneparticular association, whether
it's 33 units or 333 units, it'san opportunity to say, Hey,
folks, it's not all thatcomplicated. And my wife reminds
me that, Robert, it's justadding and subtracting. So,
Kevin Leonard (10:20):
right? I mean, reserve studies is what we do.
I'm happy to do reserve studies.
That's, that's, that's our job,and that's what we do for a
living. But doing a reservestudy is sort of like giving a
man a fish to eat, whereaseducating boards through books
or through podcasts is teachingboards how to fish and being
able to sustain theirassociations or their life
(10:44):
moving forward with respect toreserves,
Robert Nordlund (10:48):
yeah, I like that word sustain when we hear
in conversation, sustainability,usually, I think the average
person thinks a recycle bin andthey'll throw their plastic
water bottle out and in therecycle bin. When I think about
sustainability, I think ofsustaining an association. It's
(11:09):
new at the start, and we want itto be a nice place to live at
the 10 year point 20 year point30 year point 40 year point 50
Year point and that happens whenyou are putting up a good fight
against ongoing deterioration,and that happens when you're
setting the funds aside.
Otherwise you get into again youtalked about the book came out
in 2021 when I think 2021 Ithink of Champlain tower south,
(11:30):
and just the tragedy there, andhow that awakened, awakened us
to the reality that the kind ofdecisions board members make
have some very seriousconsequences. And so we want
board members to appreciate thatjust do a little bit of planning
along the time that you're aboard member. And if you take
(11:52):
care of your fair share,whatever your term is, one year,
two years, three years, or ifyou repeat, the future is going
to take care of itself, is it?
Is it really that simple?
Kevin Leonard (12:03):
Yeah, it is. And that's that's the whole point of
reserve funding. There's manyways to pay for a large project
or a reserve expense, as we say,and so you could special assess,
you can get a loan, or you canbudget appropriately, put it
into a reserve fund and earninterest, even interest aside,
(12:28):
it's still a good decision tohave the money on hand so that
you can complete these projectson time. Some board members
think that a special assessmentis is the easy answer to
anything that happens that willcost more money that they than
they have on hand. But inreality, most special
assessments are put into thebudget for the next fiscal year.
(12:51):
Most special assessments are notall paid upfront. They're paid
over a couple of months, sixmonths, or even 12 months, and
most special assessments don'thave a 100% payment rate,
meaning not all homeowners aregoing to pay the special not all
homeowners pay their HLA due. Sowhy would they pay a special
assessment? So and if you needthe special assessment for
(13:13):
something like a roof that isleaking and needs replacement,
if you wait another 12 monthsbefore you have the money on
hand to be able to do that,you've already incurred another
20 to $30,000 worth of damagefrom water intrusion. So special
assessments are not the easy fixthat some people may think it
(13:33):
is. It is much more appropriateto plan responsibly, budget
responsibly, and be able to,like the California Civil Code
says, to protect, maintain andenhance the common areas of your
association,
Robert Nordlund (13:50):
and you come back to it and the homeowners
are going to pay the bill oneway or the other. So it's not
like you're saving thehomeowners any money by keeping
their reserve funding amountslow, because you're just going
to have to pay for the roof witha special assessment. So it's,
it's, they're going to pay themoney one way or the other. I
was talking to who was it aboard Yeah, it was a board
(14:13):
member, and I think it wasyesterday or the day before, who
was talking about theirexperience that they came up and
needed a special assessment.
First thing they do was it tooka month or two to get clearance
from their attorney that how todo the special assessment, how
to structure it. Then theypresented the special
assessment. They needed to getthe vote on it. So there's
months that go by before you caneven get the yes or no, and if
(14:38):
it fails, then you have to startover again. And, you know,
enlist, you know, to get the 17more votes that you were short
on the first vote. So that'sjust not a, not a good solution.
And everything we can do,whether here our webinars the
book, you're going to hear thateveryone. Paying their fair
(14:59):
share over time. As you said,Kevin, with the budgeted
funding, that's just the rightway to do it, and that's
Kevin Leonard (15:09):
equitable, right?
So if Yeah, so a good example ofthis is a 20 year roof that
costs, say, $200,000 everybodyshould or each year the
community should be saving$10,000 a month, so that at the
end of 20 years, they have$200,000 to replace that roof.
Now imagine if years one through10 they're like, this is a brand
(15:29):
new roof. Why are we savingmoney for it? It's going to last
forever. Someone else's problem.
I'm going to move by then theydon't contribute anything to
reserves for the first 10 years.
Now the homeowners in years 11through 20 have to contribute
$20,000 over 10 years, or doubletheir fair share to be able to
pay for that roof. So the burdenof that reserve expense was
(15:51):
inequitably shifted from theprior owners to the most recent
owners, and that is what we aretrying to avoid when we are
planning so far out in advancefor they may seem like random
expenses because they'rehappening every 510, 25, years,
but they are inevitable, andthey are reasonably predictable,
(16:14):
and when you can put that in areserve analysis, we can, like
you said, add and subtract, do alittle bit of division to be
able to equitably distributethose expenses over all
homeowners over the course ofthe association's lifespan, so
that everybody pays for theirown fair share.
Robert Nordlund (16:37):
Yeah. Another thing we need to start talking
about the book sometime. Butanother thing that I came to
mind when you were talking aboutthat was people say, Well, how
can you predict the future? AndI think when you think about it,
we all do maybe every day. Howlong does it take me to get
ready? How long does it take meto brush my teeth? How long does
(17:01):
it take to prepare dinner for meif I'm got a flight at the
airport? For me, it's lax. Iknow I need to leave three hours
and 15 minutes before theflight, or I'm going to be in a
time problem. And so I canpredict the future. I can
predict it. I'm going to beanxious and in jeopardy of not
getting a good parking spot,missing my flight if I don't hit
(17:21):
that three hours and 15 minutesmark. And there's so many things
in our life that we know and wemay that roof may last 21 years,
it may last 19 years. It may be,as you say, $200,000 it may be
210 but it's gonna happen, andit's gonna be around then, and
we might as well face thatreality now exactly. So
Kevin Leonard (17:44):
like you said, it's reserve. Planning is not an
exact science, but it is areasonable estimate about the
future, and it's about and it'sabout boards beating being being
prudent and not sticking theirheads in the sand. They need to
understand what's coming, planresponsibly and act in the best
(18:06):
interest of the association. Soback to the book.
Robert Nordlund (18:09):
Yeah, I like that. Okay, back to the book.
Books here, and it is full of 27chapters, but organized into
1234, areas. The four areas arereserve fund basics, reserve
study basics, understanding areserve study, key results and
(18:31):
general reserve topics. And Inoticed that you did not go deep
into laws and legislation,because those are kind of always
changing. I think the internetis a better resource for that,
but you've made this so easy toread, and it's, as you
suggested, the kind ofinformation a board member needs
(18:53):
to help guide their associationforward,
Kevin Leonard (18:56):
right? And, yeah, we don't go too deep into laws
and legislation, because thatdiffers and varies based on
which state you're in. So wewanted this book to be
accessible by anybody andeverybody, and we don't want to
focus on California legislationversus Florida versus the state
of Washington and so on. Butyou're right. So the first part
of the book is all about reservefund theory. We need to
(19:19):
understand why we're doing whatwe're doing, why we're reserving
funds, why we're doing a reservestudy, before we get into how
it's done and why it'simportant. So which is kind of
what we were talking about theselast couple of minutes. We were
just talking about why wereserve funds, and once boards
and managers and homeownersalike, they understand we should
(19:41):
be reserving funds. That begsthe question, how much should we
reserve? And that is one of theanswers that the reserve study
aims to provide. So a reservestudy essentially answers three
main questions, what are wereserving for? What. So how
strong is our reserve fundtoday, and how much do we need
(20:05):
to budget for reserves next yearand into the future so that we
can maintain our community andmaintain adequate reserves. So
what we are reserving for is thecomponent list, and it's the
first result, because it's thefoundation. If we don't have an
accurate component list, whichis the scope and schedule of
your predictable reserveprojects over the next 30 plus
(20:27):
years, then the financial partof the analysis is going is is
not going to be useful. Thisneeds to be as accurate as
possible, right? Exactly. Soonce we know our reserve
expenses over the next year, or,sorry, the next 30 years, 30
plus years, then we can comparethat to what we have in the
reserve fund, and that canmeasure our reserve fund
(20:49):
strength, which we call percentfunded. A lot of board members
that have been active in theindustry for a long time know
that 70% funded is an importantnumber, because 70% funded and
higher is considered strong, and30% funded and lower is
considered weak. And that comesdirectly from our own company's
(21:11):
data, which suggests that at 30%or lower associations are
needing a special assessment orhave insufficient cash 50% of
the time. So it's a coin flip ofwhether or not you're going to
be special, assessing yourhomeowners at 30% funded or
lower, 70% funded or higher,that that risk of of meeting
(21:32):
additional funds drops to below1% so that's why that's an
important number. But as a as aboard member recently pointed
out to me, which I agree with,is that percent funded doesn't
always tell the whole story, andthat's one of the chapters in
the book, and that's why it's soimportant that the term adequate
reserves was defined just a fewyears ago because lawyers have
(21:54):
been going back and forthdebating what adequate reserves
are. But adequate reserves is istwo pronged, right? Robert,
yeah.
Robert Nordlund (22:02):
Well, let me take you back. Well, lawyers
have been talking about thatbecause isn't adequate reserve
funding required in so manygoverning documents?
Kevin Leonard (22:10):
Exactly, okay, and so and so. Boards say
adequate reserves are, areliterally just making sure
there's at least $1 in the bankaccount at the end of the day,
or is it being 100% funded? Butthe way we've defined it, and
the way national reserve studystandards has defined it, is is
two pronged. One, do we haveenough money to cover our
(22:32):
reserve obligations today, anddo we have a a reasonable
funding plan going into thefuture to make sure we are we
have enough funds to meet ourreserve obligations into the
future. So that's your percentfunded and your reserve fund
today, and then your fundingplan moving into the future. And
that brings us to the thirdresult, which, of course, is the
(22:54):
is the reserve funding plan. Andthat is ultimately, after all,
the work of putting thecomponent list together,
measuring reserve fund strength,the funding plan is the answer
that boards are looking for,because that is our
recommendation of what they needto be budgeting for their
reserve fund in the upcomingfiscal year.
Robert Nordlund (23:16):
You've done this before. All that just
rattled right off. You and Iknow we've got some people
listening in their car, andthey're thinking, Okay, that was
good stuff. So let me justsummarize. There's three main
results. It's, what are youreserving for? Number two, how
strong is our starting point? Inother words, are we going to
have to hustle, or are we doingokay? And number three, based on
(23:40):
that, how much do we really needto set aside? And that key
definition of what adequatereserves actually are, it's a
combination of cash and thefunding plan that's going to
provide into the future. And Iwill make sure those get into
the episode show notes and onthe website for you to reference
in the future. But I'm lookingat the time here, and we need to
(24:01):
take a midpoint sponsor break,so we'll take a quick break at
this time to hear from one ofour generous sponsors, after
which we'll be back for morecommon sense for common areas,
and we'll be hearing from Kevinabout the book understanding
reserves.
Paige Daniels (24:16):
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condominium board? Making theright financial decisions for
your community's future iscrucial. At Association
reserves, we're proud to servecommunities nationwide,
specializing in reserve studiestailored to your community's
unique needs. Our expert teamhelps you accurately assess your
property's assets, forecastfuture expenses and develop a
(24:37):
solid funding plan, whetheryou're a small HOA or a large
condominium association, we'vegot you covered. Visit
reservesteady.com to learn moreand get a proposal for your
association, and we're
Robert Nordlund (24:47):
back. Well, Kevin, tell us what drove the
reason for this second edition,the revision to the original
book.
Kevin Leonard (24:56):
The second edition was necessary because.
As national reserve studystandards have recently been
revised. National reserve studystandards have been in place
since, I think, 1988 1998 1998sorry, excuse
Robert Nordlund (25:12):
me. Yeah. Okay.
Now you're making you'rechallenging my memory here and
long time ago, you're
Kevin Leonard (25:16):
right. And and they have. They had remained
unchanged for what is it? 2025,
Robert Nordlund (25:22):
years? Yeah, largely unchanged, a few words
here and there, but just tweakedbecause
Kevin Leonard (25:27):
they are national reserve study standards and they
didn't need to be changed. Yep,that all changed at the really
tragic collapse of Champlaintowers south down in Florida, it
obviously very unfortunate andhopefully doesn't repeat again
into the future. But what thatevent caused was a rethink of
(25:53):
how we do reserve funding, howwe can spend reserves and and
how we can help save these agingbuildings before another tragedy
happens in the future. So thisonly getting older every day,
right? So this event caused alot of new legislation in
Florida, which hopefully wedon't need to get into on on
(26:17):
this podcast, nope. It alsorequired a fresh look at
national reserve studystandards. One of one of the
main changes that came aboutfrom this is the four part test
to the three part test of whatdefines a reserve component,
meaning describe
Robert Nordlund (26:36):
that a moment ago as that's the foundation for
the entire reserve city,
Kevin Leonard (26:41):
exactly. And a reserve component is what you
can spend your reserve money on.
And it used to be a four parttest, which really limited the
scope for which boards couldspend reserves on various
reserve projects. And within thefour part test, these things
usually, typically had to be aphysical component that you
(27:04):
could see deteriorating. It hadto be a common area. You had to
know exactly when it might needto be replaced, what it's going
to cost above a certainthreshold cost. And so that kind
of limited the association withrespect of spending reserves,
the new three part test removedthose the scope of of those
(27:26):
requirements. So now not only,let's just say the three part
test, it has to be your commonarea, the scope and schedule of
the project has to be reasonablypredictable, and
Robert Nordlund (27:41):
that's an important word in there,
reasonably predictable,reasonably perfectly, but
reasonably
Kevin Leonard (27:45):
Exactly. And and the cost of the project, not
only does it have to be above acertain threshold, but the cost
also has to be reasonably,reasonably predictable. And so
you notice how the Tweak andverbiage of those standards, it
now allows for certain thingslike balcony inspections to be
(28:06):
included as a potential reserveexpense. In California, for
example, balcony inspections arerequired every nine years, and
of course, there's there's apredictable cost to it as well.
So we know there's going to be asignificant cost. We know when
(28:26):
it's going to happen, and justbecause it's not a physical
asset at the community, weshould still be able to plan for
it through reserves, because youdon't want your HOA dues from
going to from 250 to 350 everynine years and then back to 250
just because of one balconyinspection. That's exactly what
a reserve fund is meant for. Isfor those non annual but fairly
(28:52):
predictable reserve projects.
Reasonably predictable,
Robert Nordlund (28:56):
yeah,
Kevin Leonard (28:56):
exactly. And the second part of the new, updated
reserve study standards is theis, how far into the future are
we willing to look forreasonably predictable reserve
projects? And I think there wasa, there was a misconception
prior to the updated reservestudy standards, because a
(29:19):
reserve study is, is is supposedto detail the income and
expenses of your reserve fundover the next 30 years. And that
did not mean you couldn't planfor projects beyond that 4050,
years away. Think plumbing,electrical, some other types of
foundational issues, a side wallor boat launch, exactly. So you
(29:43):
could still plan for it. It'sjust It wouldn't show up on
paper. In the analysis, you'dstill be reserving funds for it,
but it just wouldn't show up onpaper until it was within that
30 year mark. And the 30 yearmark is it's, it's arbitrary. We
could show 150 years of incomeand expense. Expenses for a
reserve funding plan. But thenyour reserve fund, your reserve
(30:03):
study, is 100,000 pages long,and yeah, and the details of
that become even moreinsignificant, and no one's
gonna read it, so you need tohave a cut off at somewhere. And
the national reserve studystandard committee has decided
30 years is appropriate. And sowhat these new, updated
standards have correctly pointedout is that you're not limited
(30:26):
to only planning 30 years ahead.
If you have pvc pipingunderground, or if it's copper
in the walls, or whatever it maybe, that lifespan might be 50,
it might be 75 it might be 100years, but we know that it's
going to fail at some point, andwe should be planning to
foresight in little bit, in somein some, yeah, in some
(30:49):
condition. And that's when itbecomes appropriate to start
working with various experts andyour and your on site and your
vendors that are on site on afrequent basis, because when we
come out to do a reserve studysite inspection, it's a visual
inspection for budget purposes.
(31:10):
And so we're not digging intowalls. We're not taking up
asphalt or taking off tile roofsto check the underlayment. We
rely on various experts to giveus the detail necessary to to
work up a long term budget. Soagain, with the updated national
reserve study standards, you canpay for these ongoing
(31:31):
inspections, say every fiveyears or every 10 years through
the reserve fund, and thenincorporate their findings into
the reserve analysis if needed.
Robert Nordlund (31:43):
So you're ready to get that inspection done and
get that fresh information, andyour budget just slides through
the year. You say, Oh gee, wehave a elevator load test, we
have a boiler inspection, wehave a balcony inspection. We
have in Florida, the and I'mit's sir, structural integrity
(32:04):
reserve study, yeah, well, notspecifically reserve say, but
the there's a structural elementto that, and I'm sorry I should
have that the tip of my tongue,but all those things you can
say, Oh, darn, that's gonna be a$10,000 a $20,000 expense, but
you realize it's in our reservesite, because spend reserve
funds on that and your budgetgoes smooth through the year.
And
Kevin Leonard (32:24):
I love that. And one, one important thing to
mention is that although some ofthese large, long, lasting
components, 5075, years, 100year components, we could plan
for the complete replacement ofthose systems, which you might
intuitively think we should butmost likely when it comes to
that point in time, 5075, yearsfrom original construction, a
(32:46):
lot of those components havebeen repaired and Partially,
partially replaced over time, sothat when you're working with
your various experts andvendors, they can describe to
you, no, we don't need to bereserving for a $5 million re
plumbing project. We need to bereserving for $50,000 every
other year for these ongoingpartial repairs and
(33:07):
replacements. So it's not alwaysintuitive saying we have all
this piping or all thiselectrical that is going to cost
millions of dollars. We don'tneed to overburden our
homeowners with high HOA duesand reserve contributions. Now
we can closely monitor andidentify the specific needs of
the association and then budgetbudget appropriately
Robert Nordlund (33:30):
thereafter.
Yeah, I like your word ofspecific needs, because a
reserve study is a customdocument for your budgeting and
cash flow purposes, and it'sgoing to try to take the health
and the well being of yourcommunity now, and help you
model that and care for thatbuilding, almost like it's alive
and needs special care in thisarea it's doing well in this
(33:51):
other area. And custom and helpmove that building forward. And
I just remembered, it's amilestone inspection in Florida.
The Milestone That's it. Okay.
Well, tell me, Kevin, who shouldread or use this book,
Kevin Leonard (34:08):
right? So, and going back to your previous
topic, that's why we had towrite a second edition. Is
because, although there was,there was minute changes to
national reserve studystandards, it created a very big
outcome and difference from whatwas previously written before.
So we didn't we did need torevise the book and and make
sure we were clear on thattopic. Who should read this
(34:30):
book? Managers, communitymanagers, board members. We need
to be speaking the same languageso that when I say fully funded
balance, the manager understandswhat I'm saying, the board
member knows what I'm saying,and we can have a high level
conversation about what needs tobe done at the association to
move them successfully into thefuture. I think, like my
(34:52):
clients, I said at the at thetop of the podcast, it honestly
should be required reading, andI know I'm saying that I'm the
author. I. Um, but it's, it's,it's so important, and that's
why I say, in a perfect world,every homeowner that lives in a
community association, an HOAcondominium, high rise, low
(35:14):
rise, PUD, every homeownershould read this book. Yeah,
it's, it's such an importanttopic I was
Robert Nordlund (35:21):
going to say, or have a board who understands
it and is able to communicateit. Now, I like the idea of the
homeowners also getting it,because they're going to be the
future board members of theworld. So having that pipeline
of information, the board who isnot phased or eyes glaze over
when they talk about reserves,but a board who is able to
(35:43):
communicate that, yeah, it'sjust a matter of taking care of
our building. We're doing ourfair share over time, commuting
that, communicating that to thehomeowners, and that way
everyone's on the same page. Andwhen the board says we've had
another year of inflation, weneed to raise the homeowner
assessments. The homeowners areaware that, yeah, the costs go
up on all levels, the daily,weekly, monthly costs are going
(36:05):
up, and the cost of the roof andthe asphalt and the paint are
going up. Who's surprised?
Kevin Leonard (36:10):
I live in an HOA, and I get together with my
neighbors. And I mean, youshouldn't be surprised, but I
would say roughly half of halfof our conversations usually end
up complaining about the HOA andour and dues going up. And I'm
not gonna, I'm not gonna, youknow, I'm not gonna sacrifice
(36:31):
myself by defending the HOA.
Well, I do, but that's anotherpoint. So if everybody had a
book like this, or understoodthe concept a little bit better,
we wouldn't be gettingcommercials on TV from some
insurance company demonizing theHOA and board members. The HOA
is not the bad guy. They're easyto complain about because it's
(36:51):
almost a nameless, facelessentity that's costing you money.
But board members on the HOA,they have a responsibility and
duty to act in the best interestof the Association of all the
homeowners. And if they're notdoing that, then they are. They
can be voted out of the board.
(37:14):
And I wasn't going to say that,because we don't like seeing
that. But
Robert Nordlund (37:19):
well, and we're not attorneys, so we, we,
Kevin Leonard (37:21):
they have a responsibility and a duty to act
in the best interest of theassociation. So when they are
increasing dues, when they'resaying, You know what, you
should probably trim thosehedges, they're getting a little
bit long. They're acting in thebest interest of the association
because they're protecting,maintaining and enhancing the
common areas with the goal toprotect, preserve your property
(37:49):
values. Yeah, if your HOA duesgo up 1020 bucks, you know, a
year over the next five years,you know that's maybe costing
you a couple of $1,000 but inthe meantime, if you have a
$600,000 home, your your homeprobably appreciates over the
next five to 10 years, maybe,maybe 10% to $660,000 whereas,
if the HOA is not doing theirjob, you know, your $600,000
(38:13):
home stays at $600,000 orpossibly even, even goes lower.
So I think a lot of homeownersshould realize the importance of
the HOA and and think of thelong term rather than than the
day to day, you know, parkingviolations that you might get a
letter from from the HOA. Yeah.
Robert Nordlund (38:34):
Well, here on this podcast, we love board
members. We are 100% behind you.
We sympathize with you. Weunderstand that you're trying to
do your best job, and we want togive you the words, the tools,
the arguments, the discussionsthat you can help communicate to
your homeowners that this is howwe're taking care of your
property. We don't want our yourproperty and my property to lag
(38:54):
the market. It may cost a couple$1,000 over the next five years,
but that should jump our homevalues by 10s of 1000s of
dollars.
Kevin Leonard (39:04):
I personally don't think board members get
paid enough, to be honest,
Robert Nordlund (39:08):
yeah, but I do well, of course, they're
volunteers. They're volunteers.
But I remember when I waspresident to my association, I
thought, Jesus waste how muchtime I'm spending doing this.
And then I looked at how muchmore my condo sold for three
years after I bought it, andthen I could multiply that by 71
different homeowners. I realizedthat was the most valuable work
(39:31):
that I had done. Over those pastthree years, I had elevated 71
homes. I forget what the numberwas. Now I don't want to do the
math while being recorded atthat point time, compared to
what my salary was. I was makingmore money for the association
than I was in making salary,right? And to
Kevin Leonard (39:55):
kind of bring it all home, you can maintain your
association by having and.
Adequate reserves so you can getthese projects done on time when
they need to be done. In doingthat, or to help you do that,
you can read understandingreserves, the Complete Guide to
Understanding your reserve fundand reserve study, so that the
board, the manager, thehomeowners, can be all talking
(40:16):
the same language and be workingtogether towards a successful
financial
Robert Nordlund (40:21):
future. I like that, Kevin, I started thinking
about the time. It's so easy foryou and I to talk about reserve
studies, but we have a 30 minutepodcast that we have exceeded
our budgeted time on. Thank you,Kevin. It's been great talking
with you about this book. It'svalue to the industry, and so
glad to have an opportunity totalk to you about a book and not
(40:42):
a particular reserve study thatis going sideways on us. So any
closing thoughts to add at thistime?
Kevin Leonard (40:47):
No, just thank you. Thank you for having me. As
you can tell I can I can talkabout reserves all day long, and
as boring as it sounds to writea book about reserve studies, it
was actually an enjoyableexperience. And the feedback
that I've gotten from fromagain, board members and
managers, is that they've foundit enjoyable to read as well.
Robert Nordlund (41:10):
Yeah, and I gotta reiterate that the first
time I read it, my accountanthas changed. It was enjoyable.
It was an enjoyable read. It waseasy to dive into I was so
pleased with the time that youput into it and what you
crafted. As we close the episodehere today, I want to let
everyone know that we'll have,in addition to some show notes
on some of the high points thatKevin gave today, I'll have a
(41:34):
link to a free download ofchapter one so you can get a
feel for the book. Otherwise, ofcourse, you can simply order the
book understanding reserves onAmazon, and I do have a book
right here. And earlier in theprogram, I offered a mug for
free. And let me tell you, ifyou're the 10th person to email
me with free book giveaway forepisode 113 I'll sign the book
(41:59):
and I'll send it to you email,podcast at reserves, a.com with
your name, address and episode113, book giveaway, and I'll,
I'll send you a book. Kevinlooks lives in a different city
than me, so it'll have mysignature on it, not both of
ours. But
Kevin Leonard (42:14):
you're okay with that. That's totally fine with
me. Ballot work,
Robert Nordlund (42:17):
hey, well, we hope you learned some HOA
insights from our discussiontoday that helps you bring
common sense to your commonareas. We look forward to having
you join us for another greatepisode next week.
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(43:15):
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And most special assessments don't have a 100%
(00:05):
payment rate, meaning not allhomeowners pay their HOA due so
why would they pay a specialassessment? So special
assessments are not the easy fixthat some people may think it
is. It is much more appropriateto plan responsibly, budget
responsibly, and be able to,like California Civil Code says
(00:28):
to protect, maintain and enhancethe common areas of your
association.
Announcer (00:33):
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Association Insights & Marketplace, Association
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Robert Nordlund (00:48):
Welcome back to HOA Insights
Common Areas. I'm RobertNordlund, and I'm here today for
episode number 113 forconversation with Kevin Leonard,
reserve specialist and one ofour key project managers here at
Association reserves, who's thedriving force behind our book
understanding reserves, itssecond edition was just
published, and I look forward tohaving the opportunity to hear
(01:09):
from Kevin in a few minutes, sohe can share all about the book
and how and why it's beenrevised. Well, last week's
episode number 112, was anotherof our board hero episodes,
appropriately titled Anunfortunate story. The truth is
that sometimes bad things happenat your association. And from
(01:29):
our perspective, we've seen thecycles that some associations go
through, some troubled yearsfollowed by some recovery or
turnaround years. So what I wantto say is neither good years or
bad, years are permanent. Thegood news is that we've already
recorded next week's episode 114so you can hear our follow up to
that episode 112 so stay tunedif you missed episode 112 and
(01:53):
don't know what I'm talkingabout or any other prior
episode, take a moment aftertoday's program to listen from
our podcast website, Hoainsights.org watch or watch on
our YouTube channel, but betteryet, subscribe from any of the
major podcast platforms so youdon't miss any future episodes.
And those of you watching onYouTube can see the HOA insights
(02:15):
mug that I have here. Let's seeif I get the focus. It's talking
about budgeting, one of myfavorite subjects, and you can
get a hold of that from ourmerch store, which you can
browse through from our Hoainsights.org website or the link
in the show notes, and you'llfind that we have some great
free stuff there, like boardmember zoom backgrounds and some
(02:37):
specialty items for sale, likethis mug. So go to the merch
store, download a free zoombackground, take a moment, look
around, find the mug you'd likeand email yet. Podcast at
reserves, a.com with your name,shipping address and mug choice
mentioning episode 113, muggiveaway, and if you're the 10th
(02:58):
person to email me, I'll shipthat mug to you free of charge.
Well, we enjoy hearing from youresponding to the issues you're
facing at your association. Soif you have a hot topic, a crazy
story or a question you'd likeus to address, you can contact
us at 805-203-3130, or email usat podcast at reserve study.com
(03:21):
now this episode was prompted byLynette from Knoxville, who
asked if we could do an episodeon reserve studies. And that was
actually a pretty easy ask,because I'm in the reserve say
business, and I think you knowthat. So we thought the best
response was to get Kevin on theprogram to talk about this great
(03:42):
resource we have. It's a nicedesktop reserve study answer
book called Understandingreserves. It's just been revised
and released in its secondedition. Got a copy here again
for the YouTube viewers. You cansee it's a nice paperback book,
and it's a great opportunity tohave Kevin on the show to tell
(04:03):
you all about it. So Kevin,welcome to the program. Thank
you, Robert, so glad to be here.
So tell me. When did the initialbook, the first edition, come
out?
Kevin Leonard (04:11):
The first book came out in early 2021 after
about a year and a half ofwriting and compiling the
material. And as you know, thematerial has been around since
since the early 1990s and wefinally were able to compile it
(04:33):
into a single resource that isdigestible for our board member
and manage your clients. Andsince 2021 I'm proud to say that
we've sold over 2000 copies ofthe book which is which is
amazing. And the response fromfrom readers has been more
(04:54):
incredible than I could I couldreally believe they are loving
the. Book. They are, they arefinally grasping this concept
that they've, they've, they'vebeen, they've been thinking
about for for so long. And a fewof my clients actually have the
book as required reading for anynew board members. So you get
(05:16):
elected to the board, and theirfirst, their first order of
business is to readunderstanding reserves, which I
think is, is fantastic. It maynot be necessary for every
Association across the country,but I think it's a valuable
resource. And clearly many, manyboards and associations think so
as well.
Robert Nordlund (05:36):
Yeah. Well, obviously we were hoping, when
you said the first thing, I wassaying, Well, maybe the second
thing, hopefully they read thegoverning documents first. But I
like it being up there. Kevin,I'm not sure if I told you, but
yes, for years and years, we'vehad training materials at
Association reserves,documentation, National Reserve
say standards came out in 1998and so there was those guiding
(06:00):
principles that shape theindustry. And still, and even to
this day, we have board membersasking, what are some very
fundamental questions. You know,we have a regular webinar
series, but when you said you'regoing to compile all this
information and put together ina book, I was actually pretty
nervous, like, Oh, gee. What isthis going to be a Franken book,
(06:22):
where it's a compilation ofarticles to different audiences
with different tones andtechnical things, and I read
your first draft with grittedteeth, and you had me by the
first chapter, and I just itJust, I was so relieved, right?
And you can read, yeah, goahead.
Kevin Leonard (06:44):
And you can tell by the the comments on on
Amazon, the comments underneaththe the Book link page, 99% of
them are five star, fantasticrecommendations and all that, I
got one negative response andtell me about that. And the
negative response was, this bookis too elementary. We need we
(07:08):
need more advanced topics. AndI'm thinking to myself, that is
the exact point of this book. Isdistilling the complexity of a
reserve study and reservefunding and make it as simple as
possible, so that anybody canread it and understand it and
and help guide theirassociations to a successful
(07:28):
financial future. So if that'sthe only negative comment I get,
I can live with that, yeah,
Robert Nordlund (07:33):
you've you've hit the bullseye, because that's
what you're trying to do. That'slike, Well, yeah, that you don't
have to concern yourself withthose kind of problems. Tell me
a little bit more. But your wifeis a published author. Was that
also a factor in you wanting toput this stuff together?
Kevin Leonard (07:50):
Absolutely. One of her books is called a far cry
from yesterday, and it's abouther travels around the world as
a 19 and 20 year old woman,which sounds fun, but to me, it
seems extremely reckless anddangerous, but it clearly has
shaped who she is as a person,and through that, she was able
(08:11):
to help me realize that I canreach a wider audience through a
different type of communication.
So our job as reservespecialists is again to help
guide associations into asuccessful financial future. And
by writing this book, I can help1000s of communities at a time
where as doing one reserve studyhelps helps one community. So I
(08:34):
understood, and I stillunderstand, that reserve studies
are an extremely niche category,like, if you're going into a
bookstore, I don't know, I don'teven know what category
understanding reserves would be,is it real estate? Is it
engineering? Is it budgeting? Isit prints? Is it business? You
(08:55):
could put it in any of thosecategories or none of those
categories. So I I was notexpecting to become a New York,
New York Times bestseller, andI'm okay with that. I'm fine
with that. I just wanted, yeah,I just wanted everyone to come
to the to the same understandingthat I had, which is reserve
(09:15):
funding and reserve planning isextremely important for the
millions of people that live incommunity associations. And so I
was able to put those words onpaper. And I'm not gonna lie,
man on my wife, she was able todo all the editing, formatting,
publishing with respect to theAmazon platform. And so, so, of
(09:37):
course, yes, she was a big help.
Robert Nordlund (09:41):
Yeah, but, and I'm glad you're not waiting for
Oprah to call, right? Becausewhat you're talking about is the
real deal that we're talkingabout, the opportunity with the
podcast to reach 1000s ofpeople, and the opportunity with
the book to reach 1000s ofpeople, and that's very
different from meetings. Someoneat Starbucks and having a chat
(10:02):
or doing a reserve say, for oneparticular association, whether
it's 33 units or 333 units, it'san opportunity to say, Hey,
folks, it's not all thatcomplicated. And my wife reminds
me that, Robert, it's justadding and subtracting. So,
Kevin Leonard (10:20):
right? I mean, reserve studies is what we do.
I'm happy to do reserve studies.
That's, that's, that's our job,and that's what we do for a
living. But doing a reservestudy is sort of like giving a
man a fish to eat, whereaseducating boards through books
or through podcasts is teachingboards how to fish and being
able to sustain theirassociations or their life
(10:44):
moving forward with respect toreserves,
Robert Nordlund (10:48):
yeah, I like that word sustain when we hear
in conversation, sustainability,usually, I think the average
person thinks a recycle bin andthey'll throw their plastic
water bottle out and in therecycle bin. When I think about
sustainability, I think ofsustaining an association. It's
(11:09):
new at the start, and we want itto be a nice place to live at
the 10 year point 20 year point30 year point 40 year point 50
Year point and that happens whenyou are putting up a good fight
against ongoing deterioration,and that happens when you're
setting the funds aside.
Otherwise you get into again youtalked about the book came out
in 2021 when I think 2021 Ithink of Champlain tower south,
(11:30):
and just the tragedy there, andhow that awakened, awakened us
to the reality that the kind ofdecisions board members make
have some very seriousconsequences. And so we want
board members to appreciate thatjust do a little bit of planning
along the time that you're aboard member. And if you take
(11:52):
care of your fair share,whatever your term is, one year,
two years, three years, or ifyou repeat, the future is going
to take care of itself, is it?
Is it really that simple?
Kevin Leonard (12:03):
Yeah, it is. And that's that's the whole point of
reserve funding. There's manyways to pay for a large project
or a reserve expense, as we say,and so you could special assess,
you can get a loan, or you canbudget appropriately, put it
into a reserve fund and earninterest, even interest aside,
(12:28):
it's still a good decision tohave the money on hand so that
you can complete these projectson time. Some board members
think that a special assessmentis is the easy answer to
anything that happens that willcost more money that they than
they have on hand. But inreality, most special
assessments are put into thebudget for the next fiscal year.
(12:51):
Most special assessments are notall paid upfront. They're paid
over a couple of months, sixmonths, or even 12 months, and
most special assessments don'thave a 100% payment rate,
meaning not all homeowners aregoing to pay the special not all
homeowners pay their HLA due. Sowhy would they pay a special
assessment? So and if you needthe special assessment for
(13:13):
something like a roof that isleaking and needs replacement,
if you wait another 12 monthsbefore you have the money on
hand to be able to do that,you've already incurred another
20 to $30,000 worth of damagefrom water intrusion. So special
assessments are not the easy fixthat some people may think it
(13:33):
is. It is much more appropriateto plan responsibly, budget
responsibly, and be able to,like the California Civil Code
says, to protect, maintain andenhance the common areas of your
association,
Robert Nordlund (13:50):
and you come back to it and the homeowners
are going to pay the bill oneway or the other. So it's not
like you're saving thehomeowners any money by keeping
their reserve funding amountslow, because you're just going
to have to pay for the roof witha special assessment. So it's,
it's, they're going to pay themoney one way or the other. I
was talking to who was it aboard Yeah, it was a board
(14:13):
member, and I think it wasyesterday or the day before, who
was talking about theirexperience that they came up and
needed a special assessment.
First thing they do was it tooka month or two to get clearance
from their attorney that how todo the special assessment, how
to structure it. Then theypresented the special
assessment. They needed to getthe vote on it. So there's
months that go by before you caneven get the yes or no, and if
(14:38):
it fails, then you have to startover again. And, you know,
enlist, you know, to get the 17more votes that you were short
on the first vote. So that'sjust not a, not a good solution.
And everything we can do,whether here our webinars the
book, you're going to hear thateveryone. Paying their fair
(14:59):
share over time. As you said,Kevin, with the budgeted
funding, that's just the rightway to do it, and that's
Kevin Leonard (15:09):
equitable, right?
So if Yeah, so a good example ofthis is a 20 year roof that
costs, say, $200,000 everybodyshould or each year the
community should be saving$10,000 a month, so that at the
end of 20 years, they have$200,000 to replace that roof.
Now imagine if years one through10 they're like, this is a brand
(15:29):
new roof. Why are we savingmoney for it? It's going to last
forever. Someone else's problem.
I'm going to move by then theydon't contribute anything to
reserves for the first 10 years.
Now the homeowners in years 11through 20 have to contribute
$20,000 over 10 years, or doubletheir fair share to be able to
pay for that roof. So the burdenof that reserve expense was
(15:51):
inequitably shifted from theprior owners to the most recent
owners, and that is what we aretrying to avoid when we are
planning so far out in advancefor they may seem like random
expenses because they'rehappening every 510, 25, years,
but they are inevitable, andthey are reasonably predictable,
(16:14):
and when you can put that in areserve analysis, we can, like
you said, add and subtract, do alittle bit of division to be
able to equitably distributethose expenses over all
homeowners over the course ofthe association's lifespan, so
that everybody pays for theirown fair share.
Robert Nordlund (16:37):
Yeah. Another thing we need to start talking
about the book sometime. Butanother thing that I came to
mind when you were talking aboutthat was people say, Well, how
can you predict the future? AndI think when you think about it,
we all do maybe every day. Howlong does it take me to get
ready? How long does it take meto brush my teeth? How long does
(17:01):
it take to prepare dinner for meif I'm got a flight at the
airport? For me, it's lax. Iknow I need to leave three hours
and 15 minutes before theflight, or I'm going to be in a
time problem. And so I canpredict the future. I can
predict it. I'm going to beanxious and in jeopardy of not
getting a good parking spot,missing my flight if I don't hit
(17:21):
that three hours and 15 minutesmark. And there's so many things
in our life that we know and wemay that roof may last 21 years,
it may last 19 years. It may be,as you say, $200,000 it may be
210 but it's gonna happen, andit's gonna be around then, and
we might as well face thatreality now exactly. So
Kevin Leonard (17:44):
like you said, it's reserve. Planning is not an
exact science, but it is areasonable estimate about the
future, and it's about and it'sabout boards beating being being
prudent and not sticking theirheads in the sand. They need to
understand what's coming, planresponsibly and act in the best
(18:06):
interest of the association. Soback to the book.
Robert Nordlund (18:09):
Yeah, I like that. Okay, back to the book.
Books here, and it is full of 27chapters, but organized into
1234, areas. The four areas arereserve fund basics, reserve
study basics, understanding areserve study, key results and
(18:31):
general reserve topics. And Inoticed that you did not go deep
into laws and legislation,because those are kind of always
changing. I think the internetis a better resource for that,
but you've made this so easy toread, and it's, as you
suggested, the kind ofinformation a board member needs
(18:53):
to help guide their associationforward,
Kevin Leonard (18:56):
right? And, yeah, we don't go too deep into laws
and legislation, because thatdiffers and varies based on
which state you're in. So wewanted this book to be
accessible by anybody andeverybody, and we don't want to
focus on California legislationversus Florida versus the state
of Washington and so on. Butyou're right. So the first part
of the book is all about reservefund theory. We need to
(19:19):
understand why we're doing whatwe're doing, why we're reserving
funds, why we're doing a reservestudy, before we get into how
it's done and why it'simportant. So which is kind of
what we were talking about theselast couple of minutes. We were
just talking about why wereserve funds, and once boards
and managers and homeownersalike, they understand we should
(19:41):
be reserving funds. That begsthe question, how much should we
reserve? And that is one of theanswers that the reserve study
aims to provide. So a reservestudy essentially answers three
main questions, what are wereserving for? What. So how
strong is our reserve fundtoday, and how much do we need
(20:05):
to budget for reserves next yearand into the future so that we
can maintain our community andmaintain adequate reserves. So
what we are reserving for is thecomponent list, and it's the
first result, because it's thefoundation. If we don't have an
accurate component list, whichis the scope and schedule of
your predictable reserveprojects over the next 30 plus
(20:27):
years, then the financial partof the analysis is going is is
not going to be useful. Thisneeds to be as accurate as
possible, right? Exactly. Soonce we know our reserve
expenses over the next year, or,sorry, the next 30 years, 30
plus years, then we can comparethat to what we have in the
reserve fund, and that canmeasure our reserve fund
(20:49):
strength, which we call percentfunded. A lot of board members
that have been active in theindustry for a long time know
that 70% funded is an importantnumber, because 70% funded and
higher is considered strong, and30% funded and lower is
considered weak. And that comesdirectly from our own company's
(21:11):
data, which suggests that at 30%or lower associations are
needing a special assessment orhave insufficient cash 50% of
the time. So it's a coin flip ofwhether or not you're going to
be special, assessing yourhomeowners at 30% funded or
lower, 70% funded or higher,that that risk of of meeting
(21:32):
additional funds drops to below1% so that's why that's an
important number. But as a as aboard member recently pointed
out to me, which I agree with,is that percent funded doesn't
always tell the whole story, andthat's one of the chapters in
the book, and that's why it's soimportant that the term adequate
reserves was defined just a fewyears ago because lawyers have
(21:54):
been going back and forthdebating what adequate reserves
are. But adequate reserves is istwo pronged, right? Robert,
yeah.
Robert Nordlund (22:02):
Well, let me take you back. Well, lawyers
have been talking about thatbecause isn't adequate reserve
funding required in so manygoverning documents?
Kevin Leonard (22:10):
Exactly, okay, and so and so. Boards say
adequate reserves are, areliterally just making sure
there's at least $1 in the bankaccount at the end of the day,
or is it being 100% funded? Butthe way we've defined it, and
the way national reserve studystandards has defined it, is is
two pronged. One, do we haveenough money to cover our
(22:32):
reserve obligations today, anddo we have a a reasonable
funding plan going into thefuture to make sure we are we
have enough funds to meet ourreserve obligations into the
future. So that's your percentfunded and your reserve fund
today, and then your fundingplan moving into the future. And
that brings us to the thirdresult, which, of course, is the
(22:54):
is the reserve funding plan. Andthat is ultimately, after all,
the work of putting thecomponent list together,
measuring reserve fund strength,the funding plan is the answer
that boards are looking for,because that is our
recommendation of what they needto be budgeting for their
reserve fund in the upcomingfiscal year.
Robert Nordlund (23:16):
You've done this before. All that just
rattled right off. You and Iknow we've got some people
listening in their car, andthey're thinking, Okay, that was
good stuff. So let me justsummarize. There's three main
results. It's, what are youreserving for? Number two, how
strong is our starting point? Inother words, are we going to
have to hustle, or are we doingokay? And number three, based on
(23:40):
that, how much do we really needto set aside? And that key
definition of what adequatereserves actually are, it's a
combination of cash and thefunding plan that's going to
provide into the future. And Iwill make sure those get into
the episode show notes and onthe website for you to reference
in the future. But I'm lookingat the time here, and we need to
(24:01):
take a midpoint sponsor break,so we'll take a quick break at
this time to hear from one ofour generous sponsors, after
which we'll be back for morecommon sense for common areas,
and we'll be hearing from Kevinabout the book understanding
reserves.
Paige Daniels (24:16):
Are you part of a homeowners association or
condominium board? Making theright financial decisions for
your community's future iscrucial. At Association
reserves, we're proud to servecommunities nationwide,
specializing in reserve studiestailored to your community's
unique needs. Our expert teamhelps you accurately assess your
property's assets, forecastfuture expenses and develop a
(24:37):
solid funding plan, whetheryou're a small HOA or a large
condominium association, we'vegot you covered. Visit
reservesteady.com to learn moreand get a proposal for your
association, and we're
Robert Nordlund (24:47):
back. Well, Kevin, tell us what drove the
reason for this second edition,the revision to the original
book.
Kevin Leonard (24:56):
The second edition was necessary because.
As national reserve studystandards have recently been
revised. National reserve studystandards have been in place
since, I think, 1988 1998 1998sorry, excuse
Robert Nordlund (25:12):
me. Yeah. Okay.
Now you're making you'rechallenging my memory here and
long time ago, you're
Kevin Leonard (25:16):
right. And and they have. They had remained
unchanged for what is it? 2025,
Robert Nordlund (25:22):
years? Yeah, largely unchanged, a few words
here and there, but just tweakedbecause
Kevin Leonard (25:27):
they are national reserve study standards and they
didn't need to be changed. Yep,that all changed at the really
tragic collapse of Champlaintowers south down in Florida, it
obviously very unfortunate andhopefully doesn't repeat again
into the future. But what thatevent caused was a rethink of
(25:53):
how we do reserve funding, howwe can spend reserves and and
how we can help save these agingbuildings before another tragedy
happens in the future. So thisonly getting older every day,
right? So this event caused alot of new legislation in
Florida, which hopefully wedon't need to get into on on
(26:17):
this podcast, nope. It alsorequired a fresh look at
national reserve studystandards. One of one of the
main changes that came aboutfrom this is the four part test
to the three part test of whatdefines a reserve component,
meaning describe
Robert Nordlund (26:36):
that a moment ago as that's the foundation for
the entire reserve city,
Kevin Leonard (26:41):
exactly. And a reserve component is what you
can spend your reserve money on.
And it used to be a four parttest, which really limited the
scope for which boards couldspend reserves on various
reserve projects. And within thefour part test, these things
usually, typically had to be aphysical component that you
(27:04):
could see deteriorating. It hadto be a common area. You had to
know exactly when it might needto be replaced, what it's going
to cost above a certainthreshold cost. And so that kind
of limited the association withrespect of spending reserves,
the new three part test removedthose the scope of of those
(27:26):
requirements. So now not only,let's just say the three part
test, it has to be your commonarea, the scope and schedule of
the project has to be reasonablypredictable, and
Robert Nordlund (27:41):
that's an important word in there,
reasonably predictable,reasonably perfectly, but
reasonably
Kevin Leonard (27:45):
Exactly. And and the cost of the project, not
only does it have to be above acertain threshold, but the cost
also has to be reasonably,reasonably predictable. And so
you notice how the Tweak andverbiage of those standards, it
now allows for certain thingslike balcony inspections to be
(28:06):
included as a potential reserveexpense. In California, for
example, balcony inspections arerequired every nine years, and
of course, there's there's apredictable cost to it as well.
So we know there's going to be asignificant cost. We know when
(28:26):
it's going to happen, and justbecause it's not a physical
asset at the community, weshould still be able to plan for
it through reserves, because youdon't want your HOA dues from
going to from 250 to 350 everynine years and then back to 250
just because of one balconyinspection. That's exactly what
a reserve fund is meant for. Isfor those non annual but fairly
(28:52):
predictable reserve projects.
Reasonably predictable,
Robert Nordlund (28:56):
yeah,
Kevin Leonard (28:56):
exactly. And the second part of the new, updated
reserve study standards is theis, how far into the future are
we willing to look forreasonably predictable reserve
projects? And I think there wasa, there was a misconception
prior to the updated reservestudy standards, because a
(29:19):
reserve study is, is is supposedto detail the income and
expenses of your reserve fundover the next 30 years. And that
did not mean you couldn't planfor projects beyond that 4050,
years away. Think plumbing,electrical, some other types of
foundational issues, a side wallor boat launch, exactly. So you
(29:43):
could still plan for it. It'sjust It wouldn't show up on
paper. In the analysis, you'dstill be reserving funds for it,
but it just wouldn't show up onpaper until it was within that
30 year mark. And the 30 yearmark is it's, it's arbitrary. We
could show 150 years of incomeand expense. Expenses for a
reserve funding plan. But thenyour reserve fund, your reserve
(30:03):
study, is 100,000 pages long,and yeah, and the details of
that become even moreinsignificant, and no one's
gonna read it, so you need tohave a cut off at somewhere. And
the national reserve studystandard committee has decided
30 years is appropriate. And sowhat these new, updated
standards have correctly pointedout is that you're not limited
(30:26):
to only planning 30 years ahead.
If you have pvc pipingunderground, or if it's copper
in the walls, or whatever it maybe, that lifespan might be 50,
it might be 75 it might be 100years, but we know that it's
going to fail at some point, andwe should be planning to
foresight in little bit, in somein some, yeah, in some
(30:49):
condition. And that's when itbecomes appropriate to start
working with various experts andyour and your on site and your
vendors that are on site on afrequent basis, because when we
come out to do a reserve studysite inspection, it's a visual
inspection for budget purposes.
(31:10):
And so we're not digging intowalls. We're not taking up
asphalt or taking off tile roofsto check the underlayment. We
rely on various experts to giveus the detail necessary to to
work up a long term budget. Soagain, with the updated national
reserve study standards, you canpay for these ongoing
(31:31):
inspections, say every fiveyears or every 10 years through
the reserve fund, and thenincorporate their findings into
the reserve analysis if needed.
Robert Nordlund (31:43):
So you're ready to get that inspection done and
get that fresh information, andyour budget just slides through
the year. You say, Oh gee, wehave a elevator load test, we
have a boiler inspection, wehave a balcony inspection. We
have in Florida, the and I'mit's sir, structural integrity
(32:04):
reserve study, yeah, well, notspecifically reserve say, but
the there's a structural elementto that, and I'm sorry I should
have that the tip of my tongue,but all those things you can
say, Oh, darn, that's gonna be a$10,000 a $20,000 expense, but
you realize it's in our reservesite, because spend reserve
funds on that and your budgetgoes smooth through the year.
And
Kevin Leonard (32:24):
I love that. And one, one important thing to
mention is that although some ofthese large, long, lasting
components, 5075, years, 100year components, we could plan
for the complete replacement ofthose systems, which you might
intuitively think we should butmost likely when it comes to
that point in time, 5075, yearsfrom original construction, a
(32:46):
lot of those components havebeen repaired and Partially,
partially replaced over time, sothat when you're working with
your various experts andvendors, they can describe to
you, no, we don't need to bereserving for a $5 million re
plumbing project. We need to bereserving for $50,000 every
other year for these ongoingpartial repairs and
(33:07):
replacements. So it's not alwaysintuitive saying we have all
this piping or all thiselectrical that is going to cost
millions of dollars. We don'tneed to overburden our
homeowners with high HOA duesand reserve contributions. Now
we can closely monitor andidentify the specific needs of
the association and then budgetbudget appropriately
Robert Nordlund (33:30):
thereafter.
Yeah, I like your word ofspecific needs, because a
reserve study is a customdocument for your budgeting and
cash flow purposes, and it'sgoing to try to take the health
and the well being of yourcommunity now, and help you
model that and care for thatbuilding, almost like it's alive
and needs special care in thisarea it's doing well in this
(33:51):
other area. And custom and helpmove that building forward. And
I just remembered, it's amilestone inspection in Florida.
The Milestone That's it. Okay.
Well, tell me, Kevin, who shouldread or use this book,
Kevin Leonard (34:08):
right? So, and going back to your previous
topic, that's why we had towrite a second edition. Is
because, although there was,there was minute changes to
national reserve studystandards, it created a very big
outcome and difference from whatwas previously written before.
So we didn't we did need torevise the book and and make
sure we were clear on thattopic. Who should read this
(34:30):
book? Managers, communitymanagers, board members. We need
to be speaking the same languageso that when I say fully funded
balance, the manager understandswhat I'm saying, the board
member knows what I'm saying,and we can have a high level
conversation about what needs tobe done at the association to
move them successfully into thefuture. I think, like my
(34:52):
clients, I said at the at thetop of the podcast, it honestly
should be required reading, andI know I'm saying that I'm the
author. I. Um, but it's, it's,it's so important, and that's
why I say, in a perfect world,every homeowner that lives in a
community association, an HOAcondominium, high rise, low
(35:14):
rise, PUD, every homeownershould read this book. Yeah,
it's, it's such an importanttopic I was
Robert Nordlund (35:21):
going to say, or have a board who understands
it and is able to communicateit. Now, I like the idea of the
homeowners also getting it,because they're going to be the
future board members of theworld. So having that pipeline
of information, the board who isnot phased or eyes glaze over
when they talk about reserves,but a board who is able to
(35:43):
communicate that, yeah, it'sjust a matter of taking care of
our building. We're doing ourfair share over time, commuting
that, communicating that to thehomeowners, and that way
everyone's on the same page. Andwhen the board says we've had
another year of inflation, weneed to raise the homeowner
assessments. The homeowners areaware that, yeah, the costs go
up on all levels, the daily,weekly, monthly costs are going
(36:05):
up, and the cost of the roof andthe asphalt and the paint are
going up. Who's surprised?
Kevin Leonard (36:10):
I live in an HOA, and I get together with my
neighbors. And I mean, youshouldn't be surprised, but I
would say roughly half of halfof our conversations usually end
up complaining about the HOA andour and dues going up. And I'm
not gonna, I'm not gonna, youknow, I'm not gonna sacrifice
(36:31):
myself by defending the HOA.
Well, I do, but that's anotherpoint. So if everybody had a
book like this, or understoodthe concept a little bit better,
we wouldn't be gettingcommercials on TV from some
insurance company demonizing theHOA and board members. The HOA
is not the bad guy. They're easyto complain about because it's
(36:51):
almost a nameless, facelessentity that's costing you money.
But board members on the HOA,they have a responsibility and
duty to act in the best interestof the Association of all the
homeowners. And if they're notdoing that, then they are. They
can be voted out of the board.
(37:14):
And I wasn't going to say that,because we don't like seeing
that. But
Robert Nordlund (37:19):
well, and we're not attorneys, so we, we,
Kevin Leonard (37:21):
they have a responsibility and a duty to act
in the best interest of theassociation. So when they are
increasing dues, when they'resaying, You know what, you
should probably trim thosehedges, they're getting a little
bit long. They're acting in thebest interest of the association
because they're protecting,maintaining and enhancing the
common areas with the goal toprotect, preserve your property
(37:49):
values. Yeah, if your HOA duesgo up 1020 bucks, you know, a
year over the next five years,you know that's maybe costing
you a couple of $1,000 but inthe meantime, if you have a
$600,000 home, your your homeprobably appreciates over the
next five to 10 years, maybe,maybe 10% to $660,000 whereas,
if the HOA is not doing theirjob, you know, your $600,000
(38:13):
home stays at $600,000 orpossibly even, even goes lower.
So I think a lot of homeownersshould realize the importance of
the HOA and and think of thelong term rather than than the
day to day, you know, parkingviolations that you might get a
letter from from the HOA. Yeah.
Robert Nordlund (38:34):
Well, here on this podcast, we love board
members. We are 100% behind you.
We sympathize with you. Weunderstand that you're trying to
do your best job, and we want togive you the words, the tools,
the arguments, the discussionsthat you can help communicate to
your homeowners that this is howwe're taking care of your
property. We don't want our yourproperty and my property to lag
(38:54):
the market. It may cost a couple$1,000 over the next five years,
but that should jump our homevalues by 10s of 1000s of
dollars.
Kevin Leonard (39:04):
I personally don't think board members get
paid enough, to be honest,
Robert Nordlund (39:08):
yeah, but I do well, of course, they're
volunteers. They're volunteers.
But I remember when I waspresident to my association, I
thought, Jesus waste how muchtime I'm spending doing this.
And then I looked at how muchmore my condo sold for three
years after I bought it, andthen I could multiply that by 71
different homeowners. I realizedthat was the most valuable work
(39:31):
that I had done. Over those pastthree years, I had elevated 71
homes. I forget what the numberwas. Now I don't want to do the
math while being recorded atthat point time, compared to
what my salary was. I was makingmore money for the association
than I was in making salary,right? And to
Kevin Leonard (39:55):
kind of bring it all home, you can maintain your
association by having and.
Adequate reserves so you can getthese projects done on time when
they need to be done. In doingthat, or to help you do that,
you can read understandingreserves, the Complete Guide to
Understanding your reserve fundand reserve study, so that the
board, the manager, thehomeowners, can be all talking
(40:16):
the same language and be workingtogether towards a successful
financial
Robert Nordlund (40:21):
future. I like that, Kevin, I started thinking
about the time. It's so easy foryou and I to talk about reserve
studies, but we have a 30 minutepodcast that we have exceeded
our budgeted time on. Thank you,Kevin. It's been great talking
with you about this book. It'svalue to the industry, and so
glad to have an opportunity totalk to you about a book and not
(40:42):
a particular reserve study thatis going sideways on us. So any
closing thoughts to add at thistime?
Kevin Leonard (40:47):
No, just thank you. Thank you for having me. As
you can tell I can I can talkabout reserves all day long, and
as boring as it sounds to writea book about reserve studies, it
was actually an enjoyableexperience. And the feedback
that I've gotten from fromagain, board members and
managers, is that they've foundit enjoyable to read as well.
Robert Nordlund (41:10):
Yeah, and I gotta reiterate that the first
time I read it, my accountanthas changed. It was enjoyable.
It was an enjoyable read. It waseasy to dive into I was so
pleased with the time that youput into it and what you
crafted. As we close the episodehere today, I want to let
everyone know that we'll have,in addition to some show notes
on some of the high points thatKevin gave today, I'll have a
(41:34):
link to a free download ofchapter one so you can get a
feel for the book. Otherwise, ofcourse, you can simply order the
book understanding reserves onAmazon, and I do have a book
right here. And earlier in theprogram, I offered a mug for
free. And let me tell you, ifyou're the 10th person to email
me with free book giveaway forepisode 113 I'll sign the book
(41:59):
and I'll send it to you email,podcast at reserves, a.com with
your name, address and episode113, book giveaway, and I'll,
I'll send you a book. Kevinlooks lives in a different city
than me, so it'll have mysignature on it, not both of
ours. But
Kevin Leonard (42:14):
you're okay with that. That's totally fine with
me. Ballot work,
Robert Nordlund (42:17):
hey, well, we hope you learned some HOA
insights from our discussiontoday that helps you bring
common sense to your commonareas. We look forward to having
you join us for another greatepisode next week.
Announcer (42:30):
You've been listening to Hoa insights common sense for
common areas. If you like theshow and want to support the
work that we do, you can do soin a number of ways. The most
important thing that you can dois engage in the conversation.
Leave a question in the commentssection on our YouTube videos.
You can also email yourquestions or voice memos to
podcast@reservestudy.com orleave us a voicemail at
(42:54):
805-203-3130, if you gain anyinsights from the show, please
do us a HUGE favor by sharingthe show with other board
members that you know. You canalso support us by supporting
the brands that sponsor thisprogram. Please remember that
the views and opinions expressedin this program are those of the
hosts and guests with the goalof providing general education
(43:15):
about the community, associationindustry, you'll want to consult
licensed professionals beforemaking any important decisions.
Finally, this podcast wasexpertly mixed and mastered by
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