Why are Reserve Studies Important?

HOA Reserve StudiesJust as you’re planning for your retirement, your homeowners association needs to plan for its future. Both are accomplished by saving money for necessary future endeavors. While in your retirement this may mean travelling or simply living comfortably, for HOAs and condo associations it means large repairs and replacements to common elements.

When planning for retirement, people often meet with financial advisors for assistance in determining how much money they need to save to retire comfortably while considering inflation and other factors. Community associations turn to reserve specialists who will perform a reserve study.

A reserve study is an evaluation of community assets that establishes the remaining lifespan of each component, the anticipated cost to repair or replace them, and a savings schedule to ensure enough cash is on hand when the time comes. All of this ensures the element will receive the appropriate maintenance without the association needing to take out a loan or issue a special assessment. While loans force increases in regular dues in order to pay them off, a special assessment costs members more in the short term. Due to the time it can take to approve both, the element to be replaced still deteriorates during this time which can cause more necessary repairs and a higher cost.

Many homeowners don’t feel they should pay into a reserve fund for several reasons, the largest one being they may not be living in the community in the future when the repairs will be made. But it is important to consider that these very same homeowner are enjoying these amenities now and contributing to the wear and tear that will cause their replacement. In addition, when the time comes for them to sell their home, the financial health of the association will be very important to the buyer and their mortgage lender. An underfunded or no reserve fund will be a red flag for future special assessments and deter a prospective buyer from purchasing the home. Rundown amenities and common elements that were not repaired because the association did not have the funds could be another reason an owner cannot sell their home.

By having a reserve study performed and then following through with the financial and maintenance plans, homeowners associations ensure their community looks great now and in the future.