October 2011
For the fiscal year beginning January 1, 2012
Introduction
This reserve study for Mammoth Point Condominium Homeowners Association utilizes cash flow analysis and straight-line depreciation methods in order to determine the recommended reserve funding for your budget. In addition, it provides your association with the proper disclosures per California Civil Code 1365 and 1365.5. Reserve studies are required every 3 years. Note that California Civil Code 1365.5 (e)(5) requires that community association Board of Directors adopt a “Reserve Funding Plan” at a Board meeting open to members per Section 1363.05.
There are six sections in this reserve study:
FINANCIAL ANALYSIS
– Two types of financial analysis were performed:
Cash Flow Analysis– Optimal Reserve Funding Plan.
Cash Flow Analysis is the formal accounting method used to prove that future cash flows can fund future expenses. First, we do a cash flow analysis projection depicting your reserve income and expenses for the next 30 years assuming no special action is taken other than basic cost-of-living increases in annual reserve funding.
Then our proprietary SmartReserveTM software determines the optimal reserve funding plan for anticipated reserve expenses during the next 30 years. This Optimized Cash Flow Analysis shows a recommended annual reserve funding amount in which projected reserve income can properly fund projected reserve expenses.
Straight-Line Funding Analysis.
The Straight-Line Depreciation and Percent Funded report utilizes straight-line segregated analysis to determine your association’s percent funded estimate (a measure of the strength of reserves relative to the depreciation of assets) – a required disclosure.
GRAPHS
Graphs facilitate visual interpretation of projected expenses versus reserve balances in the cash flow projections discussed above.
ASSUMPTIONS
Key assumptions used in the reserve analysis such as starting reserve balance, interest rate on reserve investment, tax rate on earned interest, etc., are documented.
METHODOLOGY
This section describes financial analysis methods utilized in this study.
RESERVE COMPONENT DESCRIPTIONS
(PHYSICAL ANALYSIS) – This section contains specific details for each reserve component, including measurements, description of each component, estimated useful life, remaining life, and current cost to replace.
AFTER YOUR RESERVE STUDY IS PREPARED
This section indicates what to do with the results of your reserve study so your association can derive the most benefit from it.
Disclaimer: No representation is made that actual costs for future reserve expenditures will correspond closely to estimated costs presented herein. Contractor bids are known to vary significantly from one another. A reserve study is a projection, not a prediction.