Time Gives You Options

What an aging car can teach a board about Reserve Plan Resilience

By Erik Sundquist, RS, Managing Partner, SMA Reserves

Suppose you buy a ten-year-old car. You budget for gas, oil, and registration. But if you have ever owned a ten year old car, you also know that something big looms over you too. Tires. Brakes. An exhaust system. Maybe even the transmission. You don't know which one comes first or how much it will cost. All you know is that filling the tank once a week doesn't do anything for that transmission.

So, you save a little money each month. When the brakes need replacing, you pay for them without reaching for your credit card or tapping your retirement account.

That is the part of the equation everyone understands. The part that gets less attention begins with a sound.

The car still runs. It still gets you to work. But there is a noise coming from somewhere under the dash that was not there last month. Nothing is broken yet. Something is just different.

If you take it in now, you have time. A good mechanic can diagnose the problem. You can get a second opinion. You can ask the questions that matter. Is this a small job? Does it need a more detailed inspection? Is this particular part near the end of its useful life? What can wait, and what can't? Maybe the answer is that it needs to wait until next week. Maybe it is a fifty-dollar part. Either way, you are choosing with information.

Now imagine waiting to see if the sound becomes a problem until the car stops working on the freeway on ramp. You still need to get to work. The kids still need rides to school. The question stops being "what is the right repair" and becomes "who can get me moving again, how fast, and what is this going to cost me." You pay for the tow, you call whatever shop has an opening, and you sign whatever estimate is pushed in front of you.

Time gives you options. Waiting for the failure takes them away.

I was a contractor for twenty years before I began doing reserve studies, and I can tell you the buildings in a community association behave a lot like that car. They make noise before they fail. The noise just sounds different.

Consider a community where the association has been patching roof leaks for a few years. The same units call every winter. Someone reseals the flashing. Someone repairs the drywall. The costs get their own line on the operating budget. After a while the leak is just part of the calendar, like the holiday party.

The problem is that a line item for repairs does not answer the question you really need answered. What is happening to the roof? Five leaks in three winters is not a maintenance schedule. It is the building trying to tell you something.

This is where an early condition assessment earns its keep. A qualified roofing consultant might discover that one particular flashing detail failed on one building and on no others. They might determine that the underlayment is worn through on the south facing roofs and has years of life remaining on the north facing ones. They might discover that the entire system is closer to the end than anyone suspected. Those are three very different diagnoses with three very different price tags, and no board can look at a pile of repair invoices and determine which one it has.

Once the board knows, the reserve study can catch up. The analyst revises the timing and cost, and the funding plan adjusts to match. Now the board can do the work in the right order. Find the cause. Define the scope. Get three bids from qualified contractors. Tell the owners what is coming and why. None of it is exciting. Collect enough money, plan the work, fix things. That is most of the job.

Anyone whose air conditioner failed on a 105 degree afternoon in July knows the other version. Every HVAC company in town is booked for a week. You do not get three bids. You take the first company that can come out and you are thankful to pay what they demand. A board that discovers a failed roof in the middle of rainy season is in the same place, with a whole lot more money at issue and a whole lot more people watching.

At SMA we call this Reserve Plan Resilience. It is the ability of a reserve plan to get through what is coming (the large projects already on the schedule, the years when several of them cluster together, and the conditions that evolve along the way) while still leaving the board with reasonable options on the other side.

Resilience requires two things. It requires money, because money in the account is what enables a board to make choices. And it requires attention, because inspections, maintenance records, and a willingness to investigate are what tell the board which action is the right one. Money without attention buys the wrong roof. Attention without money produces a very well documented special assessment.

That is a lot of the reason we built ReserveScore™ the way we did. ReserveScore™ looks at the entire thirty-year plan, but it also scrutinizes an association's peak funding pressure years, the short window when the biggest projects cluster and demand the most money. Those are the years when a late diagnosis hurts the most. A roof that actually needs replacement three years earlier than expected rarely shows up in a quiet year. It tends to show up on top of the painting and paving.

A score is a tool, but it can only read what the study tells it. If the study still says the roof has twelve years of useful life because nobody went up and looked, the score will remain comfortable about a roof that isn't. The noise has to get to the plan before the plan can respond to it. Chasing points never fixed a roof. Knowing what is under the shingles does.

That is what I mean by Reserve Stewardship. Paying attention to the noise while there is still time to diagnose it. Asking whether the repairs you keep paying for are fixing the problem or just postponing the big decision to another day. Updating the plan when the building changes. And funding the plan enough so that when the board learns something, it can actually respond to what it learned.

Boards do not get to decide when every large expense arrives. We cannot prevent every failure, and no one can predict every cost. What a board can do is keep its options available for as long as possible.

That is a large part of what an association buys when it plans ahead. Not certainty. Options. The chance to make the decision before the building makes it for you.