Reserves

What are Reserves?

Reserves are a very important tool to make sure we have the funds on hand to pay bills for our owners.  There are four purposes to use reserves for:

1. "Overdraft" account: keeps funds on hand to cover expenses like utilities or repairs after the owner's distribution is made each month. This is most important for owners who receive mid-month distributions.

2. Project or expense planning: set aside the funds for a large expense like a furnace or appliance. This is also an option if managing a larger project but that's a separate topic. One example would be knowing that I need $2,500 to cover for a furnace at a house. I would adjust the reserves for that unit as soon as I have the quote to hold the funds to pay that bill. 

3. More Planning: if an owner makes a contribution to cover an upcoming cost make sure to set the reserves to cover that so the money is not disbursed back to them before it's used.

4. Protect Riva Ridge's Finances: we are not a bank and if an owner does not have reserves and has expenses we cannot pay them and wait to be reimbursed.  We do not do loans to them. If a situation arises where the funds are not available and a bill needs to be paid, see your supervisor or Jeremy to work it out.

How do I use Reserves?

The first step to using reserves is a conversation with the owner on setting the base level of the reserves. Reserves are setup by property and the amount will vary. Ideally you will have between $250 to $500 per unit in reserves for an owner. For a multi-unit building this will mean setting that building's reserves at a multiple of that number (e.g. a four-unit with $250 per unit would be 4 x $250 = $1,000 in reserves). If an owner wants a smaller reserves, do the math to see what expenses (utilities, maintenance, etc.) come up on average after their monthly distribution and use that to set it.

Once you have determined the reserve amount for each property you will go to the Property Page in Appfolio and scroll down to "Owners and Financials" about midway down the page (see below example). Click "Edit" on the upper right corner and you can update the "Reserve Funds" amount. Leave the other items alone.

This base reserve amount will be added to if you are increasing reserves to cover an expense. For example, I am setting aside $2,500 for a furnace at a house with a $250 reserve so I would set the reserve amount to $2,750. The biggest thing to remember is to change that back after the expense is paid so we don't hold too much of the owner's money on hand.

How do I easily confirm Reserves for an owner?

It's a good idea to check on the reserves for an owner on a regular basis.  You can do this by running an "Owner Statement (Enhanced) Report" either from Reports or from the owner page in Appfolio.  There will be a summary for each property of cash flow that includes the reserves as one of the lines. There is also a summary for all of the properties for that owner at the top of the report under the "Consolidated Summary". There are pictures of both below.