Homeowner’s associations (HOA) Boards are tasked with many responsibilities, one of which is planning for the future. It can be tempting to focus on the current maintenance, financial, and operational needs of your HOA. However, prioritizing current planning can come at the expense of long-term success.
One of the best ways to ensure your community is appropriately funded in the future is through a reserve study. With reserve studies becoming mandated in many states, HOA Boards must understand what they are and how they work.
If your HOA Board is new to reserve studies, you need this post. In it, we tell you everything you need to know to set your community up for long-term success.
What is a Reserve Study?
First, a definition.
A reserve study is a professional assessment of the major common-area components of your community. It also estimated the funding that you will need to repair or replace those assets over time.
Boards use the reserve study to inform decisions about the reserve funding their community needs. Reserve funds are separate from annual operating budgets, which only cover routine expenses. The reserve study typically identifies the following, which can help your Board focus on long-term capital expenditures.
- Common-area assets.
- The current condition of those assets.
- Their estimated remaining useful life.
- Projected replacement or repair costs.
- Recommended reserve funding levels.
The Components of a Reserve Study
In addition to what the reserve study identifies, only certain components are focused on in a reserve study. Most importantly, these include the assets the association is responsible for maintaining, such as the following.
- Roofing systems.
- Roads and pavement.
- Sidewalks.
- Clubhouses.
- Pools and recreational facilities.
- Exterior building components.
- Fencing.
- Lighting systems.
- Drainage infrastructure.
- Elevators and mechanical equipment.
When Does Your HOA Need a Reserve Study?
Understanding the definition of a reserve study is just the first part. Your Board will also need to know when the reserve study is necessary.
For many HOAs, state law governs the required frequency of reserve studies. However, if your state does not have rules on frequency, most experts recommend conducting a full reserve study every 3-5 years.
Regular updates to your reserve studies are important because they allow your Board to account for the following.
- Completed projects.
- Changes in reserve balances.
- Inflation and construction costs.
- Changes in component conditions.
- Revised useful life estimates.
Common Reserve Study Mistakes Your HOA Board Should Avoid
Reserve studies are essential for the long-term health of your HOA. However, your Board could encounter issues if you do not use the information in the reserve study effectively. Avoid these common reserve study mistakes.
- Ignoring study recommendations.
- Delaying reserve contributions.
- Failing to update the study regularly.
- Treating reserves as optional.
- Not partnering with a professional HOA management company, such as ACRI Community Realty.
If you want to get the most out of your reserve study, contact ACRI Community Realty today. Our expert team is ready to help your HOA Board prepare for future expenses while protecting your community assets and homeowner investment.
