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Why is a Reserve Fund Study Important?

SUMMARY: Know why a reserve fund study matters to the board of your community. Learn why you need it. 

Why is a Reserve Fund Study Important?

A reserve fund study is a necessary budget planning tool for condominium associations. Members of your community’s board depend on a reserve fund study to determine future repair and replacement costs. 

What is it?

The reserve study is a budget planning tool, one that assesses the condition of the reserve fund. The point of the study is to find out if there’s enough in the funds to cover the costs of anticipated and unexpected repairs. 

What are the expected repairs?

Community spaces suffer from damage over time. The reserve fund is there to cover the costs of maintaining the community’s assets to ensure that they are in excellent condition. That usually means scheduled maintenance as well as repair and replacement costs. The study identifies which parts or portions are in need of replacement or repairs and when. That way, preparations can be made. 

What are the unexpected repairs?

A thorough reserve study covers all possibilities, including cost trajectories for potential repairs or replacements. For instance, cost projections for unexpected repairs for any damage caused by a storm, accident or any unexpected event must also be factored into the report. The unexpected repairs or replacements can also include retrofit of the fire alarm system or devices in the building, resurfacing of the roadways, and more. 

Why is it important?

If the reserve fund study isn’t performed, the board has no way of knowing if they have enough funds for the property’s major repair as well as replacement projects. Also, without the study, the board won’t be able to anticipate costs properly. This can lead to frequent hikes in homeowner contributions, which places a burden on homeowners. Make sure that doesn’t happen. Have the board of your HOA pay for a reserve fund study as soon as possible. 

What can you expect?

With the reserve fund study results, HOA boards can come up with a budget that discusses how much each homeowner contribution should be. If the results say that the funds aren’t enough and that the current facilities or amenities will need to be upgraded in, say, six years, the HOA will use that information to do the math and figure out how much the contribution should be if they aim to raise enough funds in the time allotted. 

What else does it do?

Because of a reserve study, the board can also make better decisions for the long term regarding the community’s budget. The fund study results make it easier to be effective and efficient decision-makers. It also comes with a multi-year reserve funding plan, providing communities with help that they can use for years. 

How do you get help?

Look for a company that offers fund study services in your area. Check out local firms or service providers that may fit the bill. Finding someone near your community is a good option since that means a local reserve study expert will know so much more about the community and can provide accurate cost estimates for the project. Consider the experience of the firm and services it offers, too. 

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Written by Jordan Leo

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