As a homeowner’s association (HOA) board member, you play a crucial role in maintaining your community's financial health and long-term sustainability. For communities with common areas and capital assets that are the association's responsibility to maintain, one of the best tools at your disposal is a reserve study—a strategic assessment that helps ensure your association is prepared for major expenses. A well-executed reserve study can help prevent financial shortfalls, reduce the need for special assessments, and provide peace of mind for homeowners.

What Is a Reserve Study?

A reserve study is an in-depth analysis of your community’s physical assets, financial health, and foreseeable costs that will be incurred in preserving the value of the assets. It identifies upcoming capital improvements and necessary repairs, allowing your association to plan and budget accordingly.

At the core of the reserve study is the reserve fund—an account dedicated to major expenses such as roof replacements, pavement resurfacing, and emergency recovery. Unlike operating funds used for daily maintenance and operational expenses, reserve funds are set aside for long-term capital expenditures. 

Proper reserve funding ensures your community association remains well-maintained by regularly budgeting a portion of assessments to be placed into the reserve fund. This helps avoid the need to impose unexpected financial burdens on homeowners through ‘surprise’ special assessments.

Hire a Qualified Reserve Study Professional

Conducting a reserve study isn’t a DIY task. It requires expertise in financial forecasting and property evaluation. That’s why hiring a qualified reserve study professional is essential.

A reserve specialist usually has an engineering background and may be certified through the Community Associations Institute (CAI). Their job is to inspect and analyze the condition of your association’s assets, estimate the remaining lifespan of key components, and calculate the funds needed for future repairs. The analysis includes a review of costs for the necessary services in your specific location and factors in estimated inflation rates over the period under review, along with earnings on funds in the reserve account to determine future funding needs.

Before hiring a professional, check your community’s governing documents and state laws. Some areas have regulations regarding how often reserve studies must be conducted and who is qualified to perform them.

Review the Results of the Study

Once the reserve study is complete, it’s important to review the findings carefully. Work closely with your community manager to review the details, identify potential problem areas, and present solutions to homeowners.

Transparency is key. Homeowners should understand how the reserve study impacts their financial future. When owners see the value of a well-funded reserve account, they are more likely to support necessary adjustments to assessments. Clear communication builds trust and encourages cooperation.

Funding the Reserve Account

A reserve study provides a roadmap for funding your community’s future needs. Use the study’s results to adjust assessments accordingly and ensure your reserve account remains adequately funded.

By implementing a solid funding plan now, your HOA can reduce the likelihood of special assessments or loans in the future. Proactive financial management helps preserve property values and can prevent unnecessary financial stress for homeowners. The existence of adequate reserve funds also affects the marketability of homes within the community because mortgage lenders consider the availability of funds for future necessary repairs to common elements when making decisions on loans within a community.

Revisit the Study Results Regularly

A reserve study isn’t a one-and-done process. It should be reviewed on a regular basis and updated every 3-5 years to assess whether the condition of the assets is deteriorating faster or slower than anticipated, to adjust for external macroeconomic factors, and to review the funding strategy to stay on track with your community’s financial goals.

Review the reserve study annually during budget preparation to assess progress against the plan, identify emerging issues, and begin preparations for projects scheduled to be completed in the upcoming 12-24-month cycles. This proactive approach allows your association to anticipate potential challenges and take action before small issues become major financial burdens.

Conduct Reserve Studies at Required Intervals

Depending on your state’s regulations and governing documents, your community association may be required to conduct reserve studies at specific intervals. Even if it’s not legally mandated, regularly scheduled reserve studies demonstrate responsible financial planning and protect the long-term health of your community.

A well-maintained reserve fund reassures homeowners that their investment is being protected and helps the board make informed decisions about future expenditures.

Conclusion

A comprehensive reserve study is one of the most valuable tools an HOA can use to ensure financial stability and long-term success. By hiring a qualified professional, carefully reviewing the study’s findings, maintaining adequate funding, and regularly revisiting the plan, your association can proactively manage future expenses and avoid financial surprises.

Investing in a well-funded reserve account today means a stronger, more financially secure community for years to come. Stay ahead of the curve and prioritize reserve planning for your association!

About Community Association Management Services
In business since 1991, CAMS has grown to become North and South Carolina’s premier community management company. With experienced local managers in each of its nine regions, CAMS provides innovative solutions to the community associations it serves. To learn more, visit www.camsmgt.com/choose-cams.