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4 1. What is an HOA reserve fund? Two main accounts are used to pay for HOA expenditures—the operating fund and the reserve fund. While the operating fund is used to pay for everyday and planned yearly expenses such as insurance, taxes, landscaping, legal fees, and other paid contractors, the reserve fund is set aside for future replacements and repairs that don't occur on an annual basis. Reserves are funded by association member assessments, dues, fees, and fines. Additional money can come from interest and returns earned from existing reserve funds. It may be helpful to think of your HOA reserves like a college savings account—money that is set aside by parents each month to pay for a significant, future expense. For the savings account to become fully funded and be used for its intended purpose, several things must occur. Money should be set aside on a planned schedule and then left alone to mature, only being withdrawn at the appropriate time and place. And, just like any college fund, it's best to start saving as soon as possible—giving you years rather than months to save. 2. Why do you need a reserve fund? A reserve fund is your community's way to plan and prepare for the inevitable. Being prepared means having money set aside to pay for repairs and updates you know will happen, such as replacing a shared roof or resurfacing common roads and driveways. Beyond paying for needed repairs, reserve funds also help your community attract new buyers and meet requirements put into place by some lenders. It also helps show homeowners your board is responsible and well prepared. Seven states in the U.S. require associations to have a reserve fund in place. These states include: • California • Delaware • Hawaii • Nevada • Oregon • Utah • Virginia THINK OF YOUR HOA RESERVES LIKE A COLLEGE SAVINGS ACCOUNT—MONEY THAT IS SET ASIDE BY PARENTS EACH MONTH TO PAY FOR A SIGNIFICANT, FUTURE EXPENSE.

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