The Board recently hired a company to perform a study of our Association reserves. We had one done several years ago that several people on the Board at that time deemed inadequate. Hopefully, this one will be better. The following article identifies why a reserve fund is necessary and what should be covered.
June 11, 2013
by Brian Tight, Director of Developer Relations & Lake Worth Regional Director, Campbell Property Management
When was the last time your community did a reserve study?
As communities get older, they begin to experience “wear and tear.” Inevitably, building and ground components that are maintained by the community need to be maintained and/or replaced. The components will vary from one association to another (Condo or HOA), because no two communities are the same. These components include but are not limited to: roofs, HVAC (heating, ventilation, air conditioning) systems, painting, paving, pools, elevators, lakes, and other major assets with varying lifespans. Knowing this, most communities have money, known as reserve funds, set aside each year for the maintenance and replacements costs. How does a community plan and fund their reserve funds?
Community associations hire independent consultants or firms to conduct reserve studies report that includes at least these 3 elements:
- A listing of all the major assets that need to be funded through the reserves including each asset’s:
- Expected useful life – how long it typically lasts
- Remaining useful life – how much longer it should last
- Current replacement cost – how much to replace now
- An evaluation of the association’s current reserve funds – Are your reserves well-funded based on the assets analysis? Are you budgeting correctly for these replacement costs?
3. A recommended reserve funding plan – based on the current state of the assets and reserve funds… do you need to budget more?