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HOA Reserve: How Far In the Future Should You Cover?

HOA Reserve: How Far In the Future Should You Cover?
  • March 12, 2019
  • Blog

All About HOA Reserve Studies

Planning for the future is something that many individuals practice in their daily lives, especially when it comes to upcoming vacations or saving money for a big purchase. It is also an essential part of running a successful homeowner’s association (HOA).

One way a board of directors can adequately plan for future needs is by establishing an HOA reserve fund, where money is set aside for more considerable expenses. Many times, an association’s governing documents require that the HOA maintains a reserve account. From time to time, it is recommended that the board conduct an HOA reserve study to make sure there is enough money being allocated to the reserve fund to fund future expenses.

What is an HOA Reserve Study?

An HOA reserve study reviews all of the components the association is responsible for in ongoing maintenance, upkeep, and future repairs. Depending on the association, components may include parking areas, roads, sidewalks, common areas, security systems, roofing, and plumbing systems. The study considers how much life is left with the existing systems, as well as estimating the cost of replacing these when they break, are no longer safe, or need complete replacement.

At the end of the study, the board can calculate how much money needs to be collected annually and by how much HOA fees may need to be increased to meet future needs. The HOA reserve study should cover at least five to ten years of future expenses to be fully prepared. Sometimes, the board of directors chooses to forego a reserve study because of the initial costs. However, in most cases, they cost less than $1,000, which is far less than what it would cost if the board didn’t plan for future needs.

How Often Should an HOA Reserve Study Occur?

An HOA reserve study is supposed to be updated regularly with a physical audit occurring every three years. The cost of goods changes each year depending on the demand, shortages, and inflation. Keeping up with the changes on an annual basis is a wise choice that will keep homeowners much happier than if a special assessment is conducted to pay for the expenses later on.

Who Should Conduct a Reserve Study?

While some boards choose to conduct the HOA reserve study themselves, it is advised to outsource the task to a professional company. An HOA manager has the necessary expertise in reviewing a reserve study and can help the board review the findings and make recommendations on what next steps to take.

Failing to conduct an HOA reserve study can result in disgruntled homeowners and even potential lawsuits. For assistance with conducting your next reserve study, contact AR Management today!

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