Reserve studies are an essential topic for HOA boards. They are actually required by law in many states. The usual requirement falls between three and five years. However, completing reserve studies more often is better for an HOA. 
Why Are They So Important?
If you’re on a board, you know that HOAs have an operating budget and a reserve fund. The reserve fund is set aside for repairs/refurbishments and replacements. It can be used in the case of natural disasters and other unforeseen issues that occur. This money can also be saved for the expected big replacements like getting a new pool after 5-7 years. Reserve funds are not for everyday maintenance needs, though those go under the operating budget/funds.
Here’s the thing. All HOAs have some reserve funds, but they’re not all kept up to date and may not contain the needed amount to cover foreseen and unforeseen expenses. When HOAs don’t have a substantial reserve, it can lead to having to raise fees or even initiate special assessments.
This can be disappointing and upsetting to homeowners within the community. However, when reserve funds are managed well, it can help reduce the need to raise fees often or use special assessments to raise enough money. This can keep homeowners more loyal and content within the community.
Reserve studies can be a lot of work, though. The whole process can seem overwhelming to board members, especially at first glance. They may wonder how even to get started with a process like this. This is where association managers can be beneficial. At PMI, we have years of experience with reserve studies and know how the process goes. It’s an important and necessary part of a successful association.
When you do reserve studies regularly, the HOA will clearly understand what needs to be in reserve. As a result, they’ll be able to budget more effectively and plan for the future with more confidence. They’ll know how much money they need to have in the reserve fund for when the foreseen and unforeseen issues may occur. They’ll be better prepared to handle these needs.
What Do Reserve Studies Evaluate?
Reserve studies typically look at two things to determine the financial needs and the strength of the current funds. During these studies, there is a physical analysis and an economic analysis. The physical component is when the study determines the actual condition the community is in. It looks over physical areas (which the HOA is expected to maintain) to see how they’re holding up.
Then, they figure out what areas may need to be repaired or replaced within the near future. The financial end takes a look at your current financial status. This looks at what’s in your reserve fund, any expenses the HOA has, and how much money the HOA brings in.
What Types of Reserve Studies Are Available?
There are different types of reserve studies that can be performed. First, there’s a more all-encompassing study that involves visiting the association. It’s a fuller evaluation of the condition of the HOA involving the financial and physical components.
Another option also involves the evaluators being on site but consists of the inspector looking to see how things may have changed since the last reserve study. It doesn’t take as much time, so it is typically more affordable than the full evaluation. Another type of reserve study doesn’t involve an inspector coming on-site, which comes at a lower price tag but isn’t as involved or helpful for HOAs, since it won’t provide as accurate of information as if an inspector visited the association in person.
The cost of the study will also be determined by specific factors regarding your HOA such as how big or small the property is, where the property is located and how intricate the property is.
Overall, reserve studies are necessary for HOAs, regardless if they’re required by law or not. These studies can be very helpful for HOAs and allow them to better plan for the future. With more thorough and informative planning, HOAs can help retain more homeowners by keeping their association running smoother with less need to increase fees and use special assessments. It gives HOAs more control over their finances and helps them avoid financial trouble down the road.
At PMI, this is just one of the many services we can help you with. We know how essential reserve studies are and can ensure that your HOA has these done regularly so that your board is well equipped to handle the planned and unplanned expenses that it may face. This will allow you to be more transparent with the community, increasing trust amongst homeowners. Learn more about this and everything else by visiting our website. https://www.propertymanagementinc.com/
