HOA Operating vs. Reserve Accounts
HOA management services might handle these two accounts, but if you’re a self-managed HOA, you’ll need to know the difference. In this blog, the experts at HOA Assist explain operating versus reserve accounts.
Where does all your association’s money go? Into the operating and reserve accounts. It’s important to know the differences between these two accounts, so today, we’re going to talk about it.
HOA Operating Accounts
An association’s operating account can be compared to an individual’s checking account. Funds from this account are allocated to pay recurring bills such as:
● Your monthly landscape vendor
● Utilities and other expenses that are frequent or more maintenance-related
It’s important to have an adequate cushion of money in your operating account each month to ensure that your association has the funds to pay for these important operational expenses.
HOA Reserve Accounts
In contrast, an association’s reserve account is similar to a saving’s account. Funds from this account are used to pay for large replacement projects, such as:
● A new roof
● Concrete or asphalt
It’s important to use reserve money for projects where an element is being removed and replaced with something new. An association’s reserve expenses should also align with recommendations outlined in your community’s reserve study. If you don’t have a reserve study, make sure to check out the reserve study video if you want to know more.
When putting together your association’s budget, make sure to contribute the necessary amounts to your reserve accounts each year if you want to avoid a special assessment or a loan.
A couple more things to keep in mind:
● Most state laws prohibit associations from using money from the reserve account to fund your operating expenses – that is, unless the board votes to amend their budget to lower the reserve contributions to populate their operating account.
● Consider consulting a CPA or attorney to ensure that your association is following the laws that may govern your association.
In summary, your operating account is similar to your checking account, while your reserve account can be compared to your savings account – it’s money specifically set aside for large replacement projects.
If you are a self-managed association doing your financials on your own, it may not be worth the risk or the headache. Let HOA Assist take on the liability by doing your financials for you!
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