SECTION 202 AND SECTION 811- DEVELOPMENT TEAM REFERENCE GUIDE
For Project Development and Preservation
Richard Silverblatt Associates, Inc.
Reviewing Your Project Replacement Reserve Account
Each HUD Section 202 and Section 811 project requires the establishment of a separate Replacement
Reserve Account following the completion of construction and upon the issuance of the PRAC. This
requirement and the dollar amount to be deposited is stated in the Regulatory Agreement (see Initial
Closing Requirements in the Guide).
The dollar amount to be deposited is a budget line item of the project annual operating budget and
one-twelfth of the annual amount is to be deposited monthly. For new construction projects, the
initial amount is calculated at 0.006 times the structural cost noted in the Firm Commitment and for
projects with substantial rehabilitation, the dollar amount is calculated at 0.004 times the dollar
amount of the Capital Advance.
The amount in the Replacement Reserve Account is to be used for the payment of items in the
project that are no longer working and have reached the end of their respective useful economic life.
Not included are items that have relatively short use periods, such as building supplies. Examples of
items that could be considered for review include:
Clothes Washer & Dryer
The Guide recommends that periodically as part of a plan for preventive maintanance, the Owner
and project management evaluate the status of items in each project and undertake an analysis to
determine which items will need to be replaced over the next 12 years, the projected cost of
replacement, and whether there will be sufficient funds in the Replacement Reserve Account to
cover the cost when needed. Also, when applying for a contract rent increase, this analysis is
recommended to determining whether the contract rent amount should be increased to cover
prospective replacement reserve needs. The availability of funds in the account will be subject to
HUD approval. When payments are made for approved purposes, HUD requires that there remain at
least a minimum dollar amount in the account, equal to the initial deposit amount times 144 months
or $1,000 per unit.
Notwithstanding the need for planning and budgeting for major replacement items in the project, the
Guide recommends that Sponsors, Owners, and management agents attend to repairs when and
painting schedules on an ongoing basis.
HUD Requlations for this account are found in Chapter 4 of HUD Handbook 4350.1 REV1.
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