With the 2025 budget season in full swing, community associations face the challenge of managing reserves for long-term financial stability, maintaining building safety and complying with new legislation – all while trying to avoid financial burdens for residents.
Managing these priorities starts with a successful budget season. Here are a few essential questions to consider during your budget planning.
Has weather-related damage, lack of regular maintenance, or other unforeseen circumstances led to significant deterioration in your buildings?
It’s crucial to assess whether any structural or non-structural components of the property have deteriorated unexpectedly. This assessment should be made through a formal inspection. Any change to your building components should be updated in your community’s reserve study for future financial planning.
Repair or replacement projects that weren’t part of your original budget may now need to be included. If past projects have been delayed, consider whether further postponement could lead to higher costs down the road.
Is the current reserve fund balance in line with what was projected at the start of the year? Have reserve funds been used for any unexpected expenses not in the original budget?
It’s common for unforeseen circumstances to increase the costs of maintenance, repairs and recurring expenses. If your reserve fund balance is lower than anticipated, now is the time to adjust your projections and ensure your next budget reflects updated cost estimates.
If reserve funds were spent on unanticipated costs, it’s important to create a strategy for replenishing those funds. Fully funded reserves ensure financial security and peace of mind for future projects.
Were any large-scale projects completed within the current budget cycle? Are there any major upcoming projects that need to be accounted for in the next budget?
If your association has completed any major projects, evaluate how they affected your budget. Additionally, identify any large-scale projects planned for the next cycle. Working with a consultant can help you predict costs for these projects to avoid any hidden fees that could disrupt your budget.
When collecting bids for required projects, it’s important to evaluate the coverage of warranties provided and how they’ll impact your budget in the long run. For instance, a No Dollar Limit warranty covers 100% of replacement costs throughout the entire warranty period. This provides increased financial security over the course of the warranty period.
How have external factors, such as inflation or changes in material costs, impacted your financial planning? Are there adjustments needed to avoid future budget shortfalls?
Inflation, rising material costs, and increased insurance premiums are significant concerns for communities in Florida. If you have any vendors with contracts set to expire, it may be valuable to request updated proposals to avoid budget shortfalls and adjust as needed. Generally, we recommend factoring in a 3% year-over-year cost increase into your budget to be safe.
Has your community conducted a reserve study and Structural Integrity Reserve Study (SIRS)?
Reserve studies are an essential tool for keeping your budget on track. It reviews every building component in your community, evaluates its remaining life and creates an annual reserve deposit schedule to cover any future repairs or replacements. A good reserve study can help protect your budget from unexpected projects and expenses.
Conducting a SIRS early on also allows you to plan for essential repairs and long-term projects, ensuring both safety and sound reserve management. If you haven’t completed this study, it’s a crucial step in your financial planning process. A SIRS is required for communities three stories or higher. The deadline to complete this report is December 31st,2024.
By addressing these key questions, community associations can make informed decisions during budget season to safeguard reserves and plan for their community’s future needs.
True Property Inspections is committed to helping you protect your investments. Need a reserve study or SIRS to help inform your budget? Contact us today for a free consultation.
