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6 HOA Reserve Study Tips

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A key component of any successful homeowners’ association (HOA) is proper funding. Unfortunately, data shows that as many as 70% of HOAs don’t have enough funds to keep up with long-term community needs. About 40% of these associations are considered underfunded, with 30% categorized as severely underfunded.

HOA board members must ensure their communities have adequate money in a reserve fund to cover capital improvements and major repairs, which ultimately protects homeowners and property values. To do this, HOAs must conduct a reserve study to maintain the financial health of the community. Read on to find valuable HOA reserve study tips and learn why reserve studies are so important.

What Is a Reserve Study?

A reserve study for an HOA is an in-depth analysis of the HOA’s property, financials, and foreseeable costs. These studies are designed to identify upcoming capital improvements and repairs based on the status of a community. The study’s results will determine how much money an association must collect from homeowners to cover these expenses and keep funding on track. The monies collected go into a reserve fund. A reserve fund is cash saved by a community association for additions to components the association is obligated to maintain and future replacements and repairs that don't occur on an annual basis.

For example, an HOA may be required to replace playground equipment at least every 10 years. A reserve study will factor in that expense and calculate what needs to be saved in a reserve fund to pay for those replacements in the future.

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6 HOA Reserve Study Tips

Do your due diligence to get the most bang for your buck and conduct a reserve study that benefits your community. Here are six HOA reserve study tips to follow.

1. Hire a qualified reserve analyst.

To get an accurate, unbiased, and dependable reserve study for your community, hire a qualified reserve analyst. Reserve studies involve crucial details, visual assessments, estimates, planning, and more. An experienced reserve study professional will have the skills, credentials, and resources to complete these steps thoroughly and effectively.

Refer to your governing documents and relevant laws to see if there are restrictions on who can perform your HOA reserve study.

2. Understand what reserve study is best for your community.

While many residential communities should conduct a full reserve study, other associations may not need the most comprehensive study. There are different levels that are more appropriate for varying types of planned communities. These levels include:

  • LEVEL 1 - FULL RESERVE STUDY. A full reserve study is the most detailed type, involving several on-site evaluation steps: component inventory, condition assessment, life and valuation estimates, fund status, and funding plan.
  • LEVEL II - RESERVE STUDY UPDATE WITH AN ON-SITE REVIEW. A Level II evaluation is meant to be an update to a full reserve study. While it also involves the five main steps of a full study, it doesn’t go as deep with the component inventory. The analyst will review the existing inventory and add new components that weren’t previously recorded.
  • LEVEL III - RESERVE STUDY UPDATE WITH AN OFF-SITE REVIEW. Your community may only need a Level III reserve study, which doesn’t call for on-site visual observations. You’ll need to provide information about your community to the analyst, who then completes life and valuation estimates, fund status, and a funding plan.
  • LEVEL IV - PRELIMINARY RESERVE STUDY. When a planned community is still in development or not yet constructed, a Level IV reserve study is useful for budget estimates and funding expectations. The analyst will conduct the study using engineering and design plans.

3. Review and approve the reserve study.

Work with your community manager to review the reserve study and approve the results. An experienced professional can help you comb through the fine details, recognize problematic areas, and present solutions to association members.

Remember to be transparent with homeowners about the study’s outcomes and how it can affect future financial planning. If residents understand the reserve study and its importance, they’re more likely to comply with changes to keep the community funded and well-maintained.

Year-round maintenance is crucial. Check out “Keys to Creating a Maintenance Plan” to learn how to manage routine upkeep.

4. Create a plan for funding reserves.

Use the study’s results to adjust homeowner contributions accordingly and keep your reserve account funded. In some cases, you’ll need to reconsider assessments and fee amounts to reach your goals and cover capital improvement and expenses.

Implementing your funding plan now will reduce special assessments or loans in the future. This protects homeowners from sudden fees and prevents frustration with how the board handles association funds.

Budgeting and financial planning can be made easy. Read “The Beginner’s Guide to HOA Budgets” for basic budgeting techniques.

5. Revisit and update your reserve study often.

It’s critical to revisit your reserve study often to ensure everything is still accurate and your plan is on track. Even small changes in your community can significantly shift future funding needs. Reviewing and updating the study quarterly can help you get ahead of any issues that could affect the association.

6. Conduct reserve studies regularly.

Depending on where your community is located, there may be regulations on how often you must conduct a reserve study. For example, California requires reserve studies every three years. Additionally, HOA governing documents may have specific reserve study requirements to keep the community on top of funding.

Regular reserve studies demonstrate good financial stewardship to residents and help the board make informed decisions for the community.

8 Essential Things You Need to Know About Reserve Funds & Studies

Prioritizing your HOA’s reserve fund is one of the most important things you can do to help your community thrive. However, finding the right financial balance and funding plan requires careful analysis with a reserve study. Check out our ebook, “8 Essential Things You Need To Know About Reserve Funds & Studies,” to learn more about saving and financial planning for your HOA.