Updated Surplus Numbers

Updated Surplus Numbers
Updated Surplus Numbers: Actual surplus 2018 per audit was $85,163.
Boards 2011-2018 implemented policies and procedures with specific goals:
stabilize owner fees, achieve maintenance objectives and achieve annual budget surpluses.
Any surplus was retained by the association.
The board elected in fall 2018 decided to increase owner fees, even in view of a large potential surplus

Average fees prior to 2019

Average fees prior to 2019
Average fees per owner prior to 2019:
RED indicates the consequences had boards continued the fee policies prior to 2010,
BLUE indicates actual fees. These moderated when better policies and financial controls were put in place by boards

Better budgeting could have resulted in lower fees

Better budgeting could have resulted in lower fees
Better budgeting could have resulted in lower fees:
RED line = actual fees enacted by boards,
BLUE line = alternate, fees, ultimately lower with same association income lower had
boards used better financial controls and focused on long term fee stability

Friday, April 16, 2010

Roofing Project in Review

Here is the "new"
Here is the "old"


Last year, this association began it's multi-year upgrade and replacement of roofs. Two roofs were completed last year. Astute readers may say "Haven't we completed three roofs?" and you are correct. However that initial roof replacement, while required,  was classified to be an experiment by the former AD. His explanation: get out the bugs before committing association funds to a multi-year replacement program. Advantage: don't create many problems; sometimes things don't always go as planned and a phased and gradual implementation permits time to study the consequences of each modification and make "mid course" corrections.

Now, after 10 years of building reserves for the project that formally began last year, this association is ready to continue. It will take perhaps 8 to 10 years to do all of the roofs. Even such a schedule is very ambitions. There are 39 remaining roofs. That's at least 4 roofs per year. Exactly how many each year cannot be predicted. The past policy as stated by the former AD was to inspect the roofs each year and rate the condition. On that basis, selection would be made. A goal: don't replace a roof any earlier than necessary; to do so wastes capital. Of course, to do a roof any later than necessary can result in leaks and expensive repairs.

Will the project continue the alterations to downspouts and water runoff? Stay tuned. These should be included in the discussions held by the board as part of upcoming association meetings.

I suggest the reader take the time to read the notes at the end of this post.

Why is Timing of Replacement Important
Here's an explanation of why timing is financially important. Let's say a roof has a value of $40,000 and a roof has a life of 20 years. These are numbers for example only. I am not revealing the cost of the roofs here and the actual lifespan is determined by the quality of the shingle, its design and the design of the roof, and the materials used. The cost of the roof for each year is:

$40,000/20 years = $2,000.00

However, let's say we decide to replace a roof after 18 years of service. The cost of that roof for each of the 18 years was:

$40,000/18 years = $2,222.22

If we replaced the roof after 19 years, or one year earlier than its anticipated life, the cost per year was

$40,000/19 years = $2,105.26

These numbers accumulate, because we have 42 roofs to replace. If we replace each roof two years earlier than necessary, the costs are about $222 greater for each. It's as if we simply paid more for the roof. In real terms, delaying the replacement of a roof by two years to a full 20 years can save $222. Of course, the actual life span is determined by the quality of materials, workmanship and the actual condition of the roof. If we do replace all of the roofs two years earlier than the expected life of 20 years, then the extra cost per year is:

$222 x 42 = $9,324 addition that is spent due to early replacement. This is money that must be collected as fees and saved as reserves.

How much is this per unit owner?

$9,324 / 336 =  $27.75, which is not a great deal of money, but is about 2 months of a 5% fee increase, or about 4-1/2 months of a 2% fee increase.

The numbers get even more interesting when compared over the life of a building. Let's assume each building has a possible life of 100 years. If we assume a roof lasts a certain number of years, how many roofs will we put on a building in its lifetime? Let's use roof lifes of 15,16, 17, 18, 19 and 20 years. The total costs of putting roofs on the buildings, using constant dollars of $40,000 per building for each roof installed,  is:

15 years = 6.67 re-roofs =  $266,666.67 per building
16 years = 6.25 re-roofs  =  $250,000.00 per building
17 years = 5.88 re-roofs =  $235,294.12 per building
18 years = 5.56 re-roofs = $222,222.22 per building
19 years = 5.26 re-roofs = $210,526.32 per building
20 years = 5.00 re-roofs = $200,000.00 per building

From the above, we can see that the difference, if we can keep a roof for a full 20 years, as opposed to replacing it each 19 years, is $10,526.32.  However, this association has 42 roofs. So the true cost to the association is 42 times greater, or $442,105.26!

So, keeping the roofs for a full 20 year lifespan instead of 19 years will save the association slightly over $442,000 over the possible life of this association! Now you see the value of those longer warranties, the use of better materials, and you can see the value in careful observation and good judgement when making the decision to replace a roof. Scheduling a roof even one year too early really spends a great deal of money. I guess I would say that this is the hidden price of poor judgement or poor installation or cheap materials. Or perhaps a combination of all three. Of course, weather also plays a part. Hail has been known to damage roofs. Sometimes the damage is visible and is repaired by insurance. Sometimes the roof is weakened or slightly damaged and goes unnoticed.

If the association chooses better materials, then the life of roofs can be extended from a normal 15 years to perhaps the full 20 years. The differences, as you can see above, are significant.  A true cost analysis will consider the difference in cost of the various approaches, the initial costs, the savings over the projected life of the roof and if the benefits are worth the expenditure. On balance, we can install the cheapest possible roofs or, we can install architectural grade shingles with longer projected life spans and higher initial cost. In evaluations, it is useful to consider that the cost of materials is the large variable. The cost of labor, and its overhead, insurance and profit component is relatively steady for most asphalt shingle types.

How to Assure Achievement of Maximum Roof Life
There are technical things and I've written about those elsewhere. Good interior ventilation reduces internal roof temperature and extends the life of the roof, etc. Inspection also plays a part. So, the only way to do this is to make annual inspections and appraisals of each and every roof at BLMH. Then, a decision must be made to repair or replace any roof that has a problems. As I recall, the former AD used about $1200 as the threshold amount. However, there were other considerations.

Evaluation and Selection Criteria included, but was not limited to:
  1. Overall condition of the roof.
  2. Age of the Roof.
  3. Cost of repairs if necessary.
  4. Status of this roof as compared to any others on the "watch" list.
  5. Fund available in reserves



==================================
References, Errors, Omissions, Comments:


1. I'm cataloging roofs in an attempt to get a better idea of where this association stands. I'll provide my findings to the board and I'll probably publish some of the info here.

2. There was considerable discussion in 2008 and 2009 among the board about the details of the roofing project. I reviewed the specifications and provided my comments to the former AD. I can't predict what changes may occur this year.  A new board and a new AD. Certainly, some of the fundamentals will remain intact. Details and options are subject to review and revision.

3. There are 42 buildings, and 84 entrances; two entrances per building. I sometimes think of our building as being two, but they are actually one with firewall separating the two "mirror image" halfs.

4. In this post I looked at straightforward replacement cost and lifetime cost. There are additional analysis possible. I have simplified this and used "constant dollars" which means, I haven't included inflation which is normally in the range of 3 to 5%. So, this post assumes that a roof installed in 2010 can be replaced for the same amount in 2030. In other words, the savings rate and the interest earned on that savings is at exactly the same rate as the increase in cost of materials and labor. However, as you are aware, your saving at present earn about 0.25% and yet inflation is about 2.25% (using CPI-U). If this disparity continues over long periods, the value of the savings erodes and cannot keep up with the cost of goods and services. So, there is some simplification here.

These types of comparisons are useful when determining the value of warranties, different materials and installation approaches, etc. I have been doing various types of numerical analysis for decades. This is the type of work required by my profession. I am also very familiar with different types of analysis and comparison of data. All in a days work as they say.

5. If the goal of this association is to keep fees today as low as possible, then the only solution is to use the cheapest methods and materials that are available. However, if the goal is to achieve the lowest possible fees, which is a compromise between todays needs and requirements and those of the future, then an analysis must be made of different approaches in materials and methods, and their costs and benefits. Roofing protects the structure and also contributes to energy use. If one considers the "total cost of ownership" then energy savings are passed to unit owners. So too are any energy credits and so on. If a unit owner can be given an energy credit, that is a form of  "reverse assessment" in which the unit owner is given a reimbursement for association expenditures. Such a reimbursement should be considered to be the lowering of the monthly fees. So too would any energy savings. Reducing the "heat load" on the building and/or increasing insulation properties reduces unit owner energy costs and makes it possible to install smaller HVAC furnace and air conditioning systems. That is also a savings to the unit owner. There is a reason my energy costs are very low. I have an older roof. This was achieved in part by the additional insulation placed in the attic (by the owner). Improved air flow would lower the energy costs further by decreasing the attic temperature. I pay the energy bill of a fan installed in the roof by the association which provides a small improvement but is not equivelant to the passive ventilation systems installed as part of the two roofs last year.

6. I posted some additional data on April 17, and re-arranged some of this for better flow.

No comments:

Post a Comment

Please leave a comment!

Note: Only a member of this blog may post a comment.