Partner Post: A Practical Overview of the Condo Association Reserve Study

This post was republished with permission from BetterCondoLife.com.

The Condo Association reserve study is perhaps the most boring document you can imagine.  It is also one of the most important for your community.  It is a foundational document for all of your financial planning as a community, and the difference between smooth sailing and a special assessment.  Here is an overview of the Condo Association reserve study.

What are Condo Association Reserves?

As a refresher from Condo Association Finances 101, you have two types of funds in your Condo.  Operational funds are regular expenses – like your cleaning contract, salaries, etc.  Reserves are used for major, capital expenses – like your roof, fire system, facade, etc.  But they also might be used for carpeting, wallpapering or gym equipment as well.  Depending on the size of your community, these can get quite complicated very quickly.  You could have dozens of different items to budget for – pool, facade, roof, plumbing, fire system, elevators, sprinkler system, garage rehabilitation, repaving of parking lots, maintenance of ponds and creeks – the list goes on and on.  A Condo Association reserve study helps you budget for all of these items without going insane.  

Who Carries Out a Condo Association Reserve Study?

Studies are carried out by professional financial firms who specialize in such studies.  There are standards put out by the Community Association Institute that determine how such studies should be carried out.  CAI also has a process for accrediting reserve specialists.  Note that there are both practical requirements, and a licensing fee from CAI, so take that as you will.  A Condo Association Reserve student can go into multiple levels of detail.  In short, if you’ve never had one, you’ll need a highly detailed reserve study for an accurate assessment of your financial standing.  If you have had one before, you can probably skate by with a paper study that updates your old Condo Association reserve study.

What Can You Expect From the Condo Association Reserve Study?

The first thing to realize is that Condo Association Reserve studies almost always come back saying you need to contribute more to reserves.  There are practical reasons for this – costs usually rise faster than people save.  There are also political reasons – it’s kind of like how you rarely have a doctor or dentist tell you everything is perfect.  Instead, they usually tell you to floss more or lay off the carbs.  

You’ll also get a very good assessment of every capital expense in your building, the replacement costs for those expenses, and the estimated time until you’ll need to replace them.  If you’re a newly constructed building or a conversion, you’ll likely learn a great deal about your building and what needs to be replaced and when.  

What Do You Do With a Condo Association Reserve Study?

You will have a good grasp of your upcoming major projects.  Also beneficial is you will understand if a special assessment is in your future, or if have sound financial footing.  Based on this information, you’ll be able to budget more effectively and ensure you are delivering a sound financial basis for your community.

Better Budgeting Means a Better Association

Carrying out your fiduciary duty is your sole codified duty as a Condo Association Board member.  This means effective and responsible budgeting.  Get started with a Condo Association reserve study and you’ll be on your way to a better Condo life.  

 

About the Author

<a href="http://bettercondolife.com/">BetterCondoLife </a> provides useful tips for condo owners. Follow them on Twitter at @BetterCondoLife.

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