What You Need To Know About Reserve Studies

A reserve study is an essential financial planning tool for homeowners associations (HOAs).

A correctly done reserve study will identify the association’s long-term repair and replacement needs and provide a funding plan to ensure that adequate funds are available when needed.

But, you might wonder what a reserve study is, why it’s important, and how to get one.

Don’t worry; we are here to guide you. Let’s get started:

What Is a Reserve Study?

A reserve study analyzes the community’s physical components (roofs, streets, sidewalks, etc.) to determine their remaining useful life. It also considers current market rates for materials and labor to estimate the future cost of repairs and replacements.

Based on this information, a funding plan is created to recommend how much money should be set aside each month to build up the reserve fund to have enough money to cover future repair and replacement costs.

Why Your Community Needs A Reserve Study?

Is your monthly assessment enough to cover the expenses of maintaining your community?

While it’s true that monthly assessments go towards the association’s operating expenses, such as mowing the lawn and painting common areas, these costs only represent a small portion of the total costs associated with owning and maintaining a community.

The larger, more expensive items, such as roof replacements, street repaving, and playground equipment replacement, can’t be paid for with monthly assessments alone.

That’s where the reserve study comes in.

As mentioned before, monthly assessments only cover a small portion of the costs associated with owning and maintaining a community. Without a reserve study, there would be no way to know how much money needs to be set aside each month to cover future repair and replacement costs. This could lead to special assessments being levied on owners every time an extensive repair or replacement project is needed, which would not be popular among owners!

Another reason why you need a reserve study is to comply with state laws. Many states now require associations to have a reserve study performed at least every 3-5 years. Additionally, many lenders will not provide financing for condominiums that do not have an up-to-date reserve study on file.

How Can Your Community Get a Reserve Study?

Reserve studies are typically conducted by third-party firms specializing in this type of analysis. The community board should contact several companies to get work proposals to get started.

Once a firm is selected, it will work with the community to collect data and prepare a report. The report will be presented to the community board for review and approval. With a reserve study in hand, the community will be in a much better position to make informed decisions about its future.

A reserve study is a vital financial tool that helps community associations plan for the future expenses of common area upkeep and improve communication between boards and members about the association’s long-term needs and goals.

If your community does not have a reserve study, now is the time to start considering how one could benefit your HOA or condominium association.

And if you have questions about starting a reserve study for your community, we’re here to help!