Pooling vs. Straight-Line Funding: Which is Best?Posted on June 5th, 2017
Carefully managing reserve funding as a board member of a condo association is a complicated balancing act. You want to make sure that your members and owners are getting the repairs and updates their properties need, while ensuring a conservative but flexible approach when necessary.
The goal for anyone planning a funding method is making smart choices about repairs, upgrades, and planning ahead to ensure those are provided. While the straight line method of determining project funding has been used for years and is common among condo associations, the pooling method has become more prevalent recently.
Both approaches include calculations for interest and rising cost of repairs as years progress but are unique in their methods and provide benefits.
The Argument for Cash Flow Funding (Pooling)
With this strategy for managing reserve funds, money is set aside in one overall pot for completing projects. All projects draw out of this central pool for funding. With proper accounting methods, less money will need to be added overall to accurately provide timely upgrades or fixes with this approach. The central benefit of pooling is greater flexibility in terms of allocating money for projects. If money needs to be moved around between projects, this is easily accomplished and does not require a member vote.
This method of funding does require careful planning and accounting, however, which is often best handled by an outside professional who can ensure that there is enough money in the general pool to support cost of repairs.
The Argument for Straight-Line Funding (Competent Method)
Straight-line funding establishes different buckets for different projects. For example: roofing, painting, ceiling repair, and pool maintenance each have their own dedicated funds, and adequate money is placed in each before they could be completed. While this can prove to be a hurdle when repairs need to get done earlier or faster, this method provides for more control and conservative use of funds. If money allocated for one project is needed for another, a vote has to be conducted on whether funds can be shared across projects. Some condo associations prefer this elevated sense of control over reserves.
Ask us about Accounting for Condo Associations
If your board is having trouble determining how to set aside money for a fund repair and improvement projects, contact our HOA/CIRA accountants today. We are skilled in providing accurate depreciation calculations and providing guidance on how to look ahead in supports project costs.
Contact Davis & Associates today for your consultation!