A reserve consultant completed a Reserve Study in August 2024 that estimated the remaining useful lives and the replacement costs of the components of common property of DHOA. According to this study the Fully Funded Balance is $26,653,862. At September 30, 2024 the Replacement Fund balance is $7,504,431 and the Fully Funded Balance is 28.2% funded. This is a significant improvement from September 30, 2023, when the Fully Funded Balance was 22.6% funded. A healthy Reserve Fund is a critical component of the financial well-being of every homeowner’s association, including DHOA. Reserve funding is designed to cover vital neighborhood improvements and major asset repairs or replacements as needs arise without requiring a special assessment. Examples of projects covered by reserve funds at DHOA include: Maintain or replace roofs Paint home exteriors Repair or replace street asphalt and curbs While expenditures for these projects vary each year based on need - the cost of repairs, replacements and maintenance are predictable based on the average life and price of an asset. Sound financial management dictates planning for the replacement of these assets and saving the funds to pay for them. The Davis-Stirling Act requires homeowner associations to have a reserve study conducted every three years and have such reserve study reviewed annually. The Davis Stirling Act does not require a specific level of funding although the reserve consultant has indicated that best practices are to fund reserves at a level between 40% and 70% with most associations reserving between 40% and 50%. Upkeep of community pools Maintain or replace lake liners Repair or replace irrigation pumps and equipment Repair or replace golf course equipment The 2024-2025 Replacement Fund budget includes funding for reserves of $165,750 monthly ($325 per homes x 510 homes) or an annual contribution to reserves of $1,989,000 plus Social Initiation assessments, Golf initiation assessments and a portion of Golf Dues allocated to reserves estimated to be $1,164,000. The budgeted expenditures for projects referred to above is $1,834,000. Based on budgeted revenues and expenditures in the Replacement Fund for the year ending September 30, 2025, the Fully Funded Balance is estimated to increase by $1,319,000 or to be 33% funded at that time. Notes Payable DHOA entered into Business Loan Agreements in August of 2021 to partially fund the Renewal Project by advancing $24,000,000 to DHOA. By entering into these loan agreements in 2021 DHOA was able to secure financing with low interest rates compared to what those rates would have been in 2022 or later. The rates are 4.12% on a $22,000,000 loan and 6.25% on a $2,000,000 loan. In August and September of 2023 DHOA began paying the 240 monthly principal payments on both these loans. The Business Loan Agreement has two financial covenants. The Debt Service Coverage Ratio is measured annually at September 30 and must be minimum of 1.15 to 1.00. At September 30, 2024 this ratio is 9.60 to 1.00. The Ending Cash/Cash Equivalent to Ideal Reserve Ratio requires a Reserve a 30% Reserve Ratio. The first measurement date is December 31, 2024 and every three years thereafter. Note that this Ratio is different from the Fully Funded Balance in the Replacement
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