Capital reserve Budget Question

[sharkmantwo]

I am a new owner at VGF. I am looking over the annual budget mailing today and am looking at the capital reserve budget on page 4. It shows that the capital reserves are at 1.7 million, but that the earned interest on income will be -2,641 dollars.

1. Am I reading this right?
2. Why aren't the capital reserves making a substantial amount of income?

If this has been explained in another post before please let me know.

Thanks

 

[DebbieB]

I am a new owner at VGF. I am looking over the annual budget mailing today and am looking at the capital reserve budget on page 4. It shows that the capital reserves are at 1.7 million, but that the earned interest on income will be -2,641 dollars.

1. Am I reading this right?
2. Why aren't the capital reserves making a substantial amount of income?

If this has been explained in another post before please let me know.

Thanks

Do you know of any banks offering a substantial interest rate? I have a checking with interest account, the interest is .05%. Last month it was 2 cents.

Not sure why it's a negative number, I noticed that on my BWV statement too.

 

[RatherB@Disney]

I was also wondering why the interest income is shown as negative. I think I figured it out: the capital reserves listed are what is budgeted to be accumulated in total for 2015. They are assuming the interest income that the replacement fund will earn, so it is subtracted off the 2015 budget to obtain the net amount that needs to be collected as member dues.

 

[sharkmantwo]

Thanks RatherB. I believe you are right. My next question would be why is the interest received so low? At 1.7 million in reserves, I estimate that 2,641 dollars is a rate of return of about 1/6th of 1 percent. That still seems low to me.

 

[drusba]

Thanks RatherB. I believe you are right. My next question would be why is the interest received so low? At 1.7 million in reserves, I estimate that 2,641 dollars is a rate of return of about 1/6th of 1 percent. That still seems low to me.

Though it sounds low, you are talking about a $1.7 million amount that is to be collected over a period of twelve months since some pay dues up front in Jan or Feb and others pay monthly through withdrawals from checking account. In other words, between mid Jan and mid Feb those paying all dues for the year at once will pay while everyone else will pay on a monthly basis through the end of the year, and thus the $1.7 million total will not be reached until Dec 2015. In essence, we do not know what the interest rate actually is from figures given.

 

[peace_all]

It probably depends on what there long term budget is.
They would rely on interest income (at a reasonably forecasted level), to an extent, to increase the capital reserve to budgeted level for future needs. If the interest rate received is inadequate, then they will rely on members to top up with maintenance fees.
There may be written restrictions, to protect the reserve fund, as to what risk level they can invest in as well, in turn the interest rates are low.

 

[RatherB@Disney]

Thanks RatherB. I believe you are right. My next question would be why is the interest received so low? At 1.7 million in reserves, I estimate that 2,641 dollars is a rate of return of about 1/6th of 1 percent. That still seems low to me.

I agree it seems low, but interest rates are very low, plus that $1.7MM is what DVC is receiving in payments throughout 2015. I do not know the percentage of members who pay dues in monthly installments, but DVC does not have that whole $1.7MM to invest at the beginning of January to accumulate interest through December. It will be some percentage of that each month until all dues are paid.

 

[CarolMN]

The interest income is shown as negative because it is a credit (reduction) against the total amount budgeted for Capital Reserves.