When it comes to the common assets in your homeowner association, it’s not a question of if they will deteriorate over time…but when maintenance and/or replacement will be needed. Having a professionally prepared reserve study is critical to being prepared. The reserve study helps your HOA Board plan and budget for major repairs and replacements. This is one of the key planning tools for your association because it requires that you pinpoint critical maintenance dates and allocate money to keep your community at its best.
Your governing documents outline the assets that your reserve fund covers. Some of the common elements that are covered include roofs, pool, exterior walls, roads, activity building and areas. Sometimes Boards will wrongly believe that if they have a reserve fund they don’t need a reserve study. A reserve fund by itself is little more than a savings account. You have no way of knowing if you’re saving too much or too little. If you are reserving too little, you are deciding by default to need special assessments in the future. A Reserve Study adds the structure needed to formulate a solid action plan.
Reserve studies should include three major components:
1. Complete inventory of physical assets
2. Capital planning report recommending budget collections and expenditures over a designated timeframe
3. Scheduled dates for maintenance and repairs
It’s important that experienced professionals conduct reserve studies. A couple of excellent reserve study companies that we use here in East Tennessee are Reserve Advisors and Criterium-Smith. While most reserve studies look 30 years ahead, conditions change that can alter scheduled maintenance and replacement expenses and dates. That’s why regular updates to your HOA reserve study are essential. Consult your state guidelines on mandatory update timeframes and compliance requirements.
When you have your Reserve Study in hand, don’t leave it setting around to gather dust. It’s a planning tool a Board should use to keep your association’s preventative maintenance on schedule. Because you are tracking maintenance and identifying potential problems, you may also see a savings in annual operating cost.
Maintaining and enhancing the value of your association is key to keeping homeowners happy and the community thriving. When your HOA Board takes full advantage of its reserve study, you’re taking a giant leap forward in creating a flourishing community.