HOA Reserve Study Overview
Why should your association have a reserve study? Well today we’re going to do a brief overview of what a reserve study is and why they’re important to your community.
What Is a Reserve Study?
A reserve study can be an invaluable tool for the association’s board of directors to use as a guide for when to start capital improvement or replacement projects for things like:
- Elevators and more!
It evaluates how much useful life each of these systems have because they’re all major expenses and must be budgeted far in advance in order to provide the necessary funds needed to repair or replace them. There are two key elements to a reserve study: a physical and a financial analysis of the association.
During the physical analysis the actual physical status of the association’s major common areas are evaluated by having someone visit the community from a reserve study company to inspect the condition of and assign an estimated replacement cost and life expectancy of each component.
The financial analysis on the other hand will calculate the association’s reserve balance to determine a recommendation for suitable reserve contribution rate in the future. This is often referred to as the funding plan.
A completed study should reflect an approximate year the association should consider starting a project and how much it will cost to do so. Ideally, an association should increase their assessments every year to ensure it has the money needed to complete these large capital improvement projects. However, some associations choose to do a special assessment or take out a loan to help increase their funding.
Build Trust & Understanding with a Reserve Study
If you choose to increase your assessment based on the data suggested in your study, this information can help your community members understand why their dues may be increasing, by outlining the estimated schedule for future projects. A recommendation we have would be to consider updating your reserve study every three to five years to ensure that your projections are accurate and up-to-date. To learn more about how a reserve study may benefit your HOA contact us