Reserve Study: How one can help your community

A reserve study is a tool for Homeowners Associations (HOAs)  or Condominiums Associations (COAs) which involve comprehensive financial and physical analysis conducted by or for an HOA or COA to assess the long-term maintenance and replacement needs of shared and/or community property assets. This is primarily conducted by a 3rd party vendor to ensure non-biases while evaluating the community. The primary purpose is to help the community establish a funding plan to ensure adequate savings goals are met and available in the reserve fund for future repairs and replacements. Using this tool serves to create financial preparedness for when assets diminish to being no longer usable. This also ensures equitable contributions fairly among both current and future homeowners preventing a one sided burden. This tool can also avoid special assessments and protect property values of the community. A reserve study primarily consist of 2 major parts; Financial Analysis and Physical Analysis.

Physical Analysis

Physical Analysis involves assessing the HOA's or COA's physical assets, such as Physical Analysis perimeter fence, pool, marque, rods and other amenities to determine their condition and remaining useful life. The 3rd party company comes out and documents all the assets of the community and then evaluates the current condition of each one of theses assets. Then they calculate the lifespan of the assets and use the past market data to calculate what the cost would be in the given time to replace the asset. 

Financial Analysis

A review of the current reserve funds take place along with the reserve rate over the last few years. Once a report of the assets condition is obtained the reserve fund company goes and using past and current market data to evaluate what the costs would be when the asset is no long useful. After this data is collected a plan is put together for how much money the community will need to set aside. There are several options for funding the community can decide to use. There is full funding  making sure the reserve funds are at 100% of projected needs. Another option is Threshold Funding which maintains a minimum reserve balance which meets or exceeds a defined threshold. Lastly Baseline Funding which keeps the reserves at a level that prevents depletion to zero.

Frequency

A reserve study should be conducted roughly every 3-6 years and done intermittently if any major repairs, asset additions, or changes in financial condition occur. 

Outcome

A reserve study is both a planning tool and a best practice for responsible HOA  and COA managements, ensuring the community remains financially stable and well-maintained over time.