Investment Income Rate (IIR)
Monies in a strata corporation’s reserve fund garner interest at varying rates depending on the tax-free investment vehicles used.
Different vehicles with different redemption horizons are used depending on the anticipated expenditures. This dynamic in great part determines how much monies are to held in cash in the reserve fund each fiscal-year.
As more monies are making their way in reserve funds, and as the Strata Property Act (SPA) mandates possible investment vehicles, it is important to time and schedule these investments to mature before scheduled expenditures over the 30 year projection of scenarios – this is the best way to maximise returns.
Best-practice depreciation reports conduct reserve fund planning that is based on an average of real or historical interest income for a reserve fund based on the opening balances – assuming a higher rate or fluctuating rates amounts to unsound risk-management.
Proper reserve fund planning has the Investment Income Rate (IIR) stay the same throughout the projection.
Having scenarios with interest rate changes over the fiscal-years amounts to gambling, and does not reflect sound financial planning.