AdministratorMay 14, 2022 at 11:13 am
Posted on Behalf of Terry Brooker:
A great article for financial analysis and discussion.
I feel this approach is one of many analysis that could be applied to condo financings. But there are a tremendous range of condo with very different financial metrics.
Starting with the Reserve Fund, the 1% metric may be appropriate, but I rely very heavily on the Reserve report and the associated plan. Certainly it is necessary for the Board to review the report beyond simply accepting the bottom line. A large scale emergency should not happen in isolation, but should only occur as a result of a major acceleration in the timing of the expenditure. So it is necessary to understand the risk of that event versus the current balance in the Reserve Fund (ie are there sufficient funds to cover a major event occurring much sooner than expected).
And with the operating fund, I agree that any surplus should be invested in a GIC ladder, rather than accept the minimal interest paid on most bank accounts. But again, depending on the nature of the condo, the general 1% metric may or may not be appropriate, although certainly worth calculating where you stand against that metric.
You are certainly correct that most condo accounting does not incorporate funds for special new projects. I have seen a large condo that puts their annual operating surplus into a special capital fund for additions and improvements (as set out in the bylaws). However, the Board needs to be very careful how this is spent. The benefit of a special assessment for improvements, is the necessity for the owners’ approval of the project and the expenditure.
But thank you for this thoughtful article, and I certainly hope it prompts other ideas and suggestions.
I now need to do the Upkeep Factor calculations for my condos !!