Has your Resort or Hospitality Property had a “Physical” Lately?

A Reserve Management Plan or Reserve Study, commonly called a RMP or RS, is a physical and financial analysis of assets within a common interest (CID) or shared ownership development; such as a timeshare resort, fractional property, condominium complex or condo hotel.  Depending on the type of association that governs the property and the association’s declaration or by-laws, reserve analysis and funding requirements vary.  Requirements for the establishment of association reserve accounts also vary from state to state, so it is a good idea to check with your state about the statutes.

The Reserve Plan or Study is simply a tool used by associations and management companies to determine what will be needed to repair and maintain the property.  Reserve accounts are established and maintained to hold funds for the long-term or deferred maintenance and replacement of any assets that the associations is responsible for.

Even though these studies tend to be lengthy and not very exciting to read… it is worth your time and effort to know what they have to say, if you are an owner or manager in that CID.  Your association’s RMP should include the following elements in a clear, easily understood format:

• Inventory of Component, with a useful life of less than 30 years.
• What the remaining useful life estimate of each component is.
• The current replacement cost for each component.
• The future replacement cost for each component.
• An analysis of the current financial condition of the association.
• Funding recommendations, disclosures and a funding summery.

Time and usage will always bring about the deterioration of common elements of any property, so the establishment of an association reserve account is both necessary and prudent.  The Reserve Management Plan ensures that a funding schedule is established for the maintenance, repair and replacement of major common area components.

“A Reserve Management Plan or Study is sometimes looked at as a necessary evil; when in fact it is much like going to the doctor for a physical, when you are feeling fine… it’s like a physical for your property!” 

Larry Vanderhoof

Chief Reserve Management Director

FARROW Commercial Construction

Larry@FarrowCommercial.com

A physical for your property… what a great idea!  A check up, if you will, on the financial stability of your investment in a common interest development.  In fact, as a board member or manager you have a fiduciary responsibility to know about the financial stability of the property!

Remember what our industry professional Mr. Vanderhoof said, “It’s like a physical for your property!”

Why do you get an annual physical for yourselves and your loved ones?  To see how your health is of course.  How high is your cholesterol, your blood sugar, your blood pressure and what are ‘your vital signs’. This information tells your physician about your overall health and if there are signs of future problems.

So, why not do the same for your property?  How are the financial “signs” looking for your property?  A good RMP will provide you with vital information about the overall health of your condominium or vacation property?

Here are just a few of the reasons that a Reserve Plan should be done on all shared ownership properties:

• The RMP provides management accountability in the form of a written, historical record and helps to document good stewardship of association assets and reserves.
• The RMP offers an invaluable management tool for long range planning and advanced scheduling of major repairs or replacement of components.
• Owners are assured that their investment will be enhanced over time through an equitable and systematic approach to accumulating the replacement reserves.
• The RMP establishes a schedule by which funding for maintenance, repair and replacement of common area components are achieved and provides assurance that funding to maintain the property will be available when needed.

Take a few minutes today to see if your vacation property or condominium association has had a “physical for your property” this year… or last year… or ever!

You will feel better knowing the financial health of your Resort or Hospitality Property!

Clara Rose

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