Funding your reserves and appropriate allocation are vital to the future of your community. Each time you borrow from your reserve or fail to fund it, you take away a piece of the future. While it’s easy to view reserves as the HOA piggy bank, that attitude can cost homeowners thousands of dollars in special assessments. Before you raid your reserves, check to see if the expense passes the National Reserve Study Standards (NRSS) test.
Remember the piggy bank you had as a child. Most of us didn’t hesitate to raid it at will unless withdrawals were required to pass a “test”. It’s the same with your association’s reserve fund. The National Reserve Study Standards (NRSS) say that a community asset must meet the following standards to be designated and funded as a reserve component:
1) Be a common area maintenance responsibility
2) Be life-limited
3) Have a predictable remaining useful life
4) Have a cost above a minimum threshold of significance
Your Board should fund your reserves to ensure that you have a continuous supply of funds to keep the community maintained and running effectively. Yet, a recent study of 400 community managers showed that 25% of HOAs set aside whatever the association can afford. Others raid their reserve fund. We see these alarming viewpoints too frequently in upper east Tennessee, and they place a community’s future in jeopardy.
Condo and HOA Board members don’t have to go it alone when managing their reserve fund. Consult a professional property manager or reserve study specialist for help in structuring your reserve plan. Community Associations Institute (CAI) also provides information for board members who want to become more knowledgeable.
Today’s decisions affect the future of your reserves, your community and every homeowner. This is an area where learning from the voice of experience can be costly. Before you raid your HOA piggy bank or make a poor financial decision, speak with a professional to learn what is in the best interest of your community.
Wise Property Solutions is East Tennessee’s only Accredited Association Management Company (AAMC®). As the region’s leader in community association management, the firm is committed to the industry’s best practices and continuing professional development. Wise Property Solutions’ certified and highly trained property managers empower well-organized and efficient communities. The firm maintains offices in both Knoxville and the Tri-Cities.
Tri-Cities, TN-VA: 423-926-7373