How much cash should we have in reserve?

How much money should a body corporate have in the maintenance reserve - or fund?

How much money should you have in reserve? That depends of course. It’s a bit like “how long is a piece of string?” But it’s still a good question and there are a few benchmarks we can use to get an idea.

An example

Let’s say we have a 30 unit building with $120,000 in reserve. This will equate to each owner’s contribution to this reserve averaging $4,000. That’s actually quite a good investment, not just because you will be able to maintain the building but also because of the effect this will have on prospective buyers.

A scenario

Let’s consider a scenario where we have two identical 30 unit apartment buildings and the only difference is that one has $120,000 in the bank and a LTMP demonstrating that is enough to cover planned maintenance, while the other has nothing in the bank and no LTMP.

Which building would you perfer to buy a unit in? And would you be prepared to pay at least $4,000 more? Most people would. Because it tells us that the body corporate is well run and on top of maintenance. So that $4,000 of the owner’s money sitting in the body corporate’s bank account is a really good investment.

Summary

So there it is. You need enough to provide for the planned maintenance in each year and to keep levies consistent. On that basis a reasonable reserve will build up and that’s just fine.

And of course, best practice.

End

Prepared by: John Bradley. August 2016

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