Tips to Get the Most out of Your HOA Reserve Study

Having a reserve study for your organization is always strongly recommended with the principle that the organization should only live within their means. But of course, preparing for future costs can be very complex which makes your reserve study as one of the most important guideposts that you can follow in order to make sure of your community’s financial security and also be able to protect home values. This article will guide you through the steps to make most of your reserve study.

Associates are indeed responsible for a number of components that only have a limited useful life. So, when it comes to figuring out when each one is going to need repairing and also when it comes to deciding how to strategically budget for such happening, it is best that this will be left to people who specialize in such field and have already garnered years of experience.

This is the phase where your reserve study experts and your management company will be able to help. And if your community has a reserve study in place, you will be able to work with your board and community manager to ensure that your budget and your community’s savings will align with the plan.

How to Get the Most out of Your Reserve Study

Although you may find providing for future costs without having to levy special assessment as daunting, this can still be possible. Here are some tips that are designed to help boards to get the most out of their communities’ reserve studies.

Tip #1: Make Sure the Reserve Study is Done by an Expert

Your association should be able to hire a professional who follows that National Reserve Study Standards. This will make sure that the standards are being followed and that the language will remain consistent from one reserve study to another.

Tip #2: It Should be a Regular Process

By having conducted regular reserve studies, this will see to it that the association is indeed getting the most out of its money because all of the information will remain up to date. For associations that are single-family, it is recommended to conduct reserve studies every three to seven years.

And, if your association has not discussed conducting a reserve study recently, then you should try to talk to your managing company and board about when your next study will be conducted, and then have it added to your association’s project plan.

Tip #3: Know All the 3 Types of Reserve Studies

You should note that there are three types of reserve studies, and these are the following:

  • The Full Reserve Study – this is the most expensive out of all the three reserve studies. Every association needs to conduct at least one of these after all of the amenities and roads have been built. This reserve study is comprehensive as it reviews the association’s items that will incur wear and tear.
  • The Update with Site Visit – this is the type of reserve study which boards should order to be conducted every three to five years. In this type, a reserve study specialist will come to the association and is going to do a basic review of the association’s component list in order to make sure that the association’s reserve fund is keeping up with the demands of the HOA.

Although conducting semi-regular site visit can tend to be an unnecessary extravagance to a lot of board members, you should keep in mind that these site visits are a great help for reserve study analysts in ensuring that they did not miss anything during the Full Reserve Study. By visiting the association, will aid them in the analysis of any additions that were made since the last study.

One other important reason to have these types of studies regularly conducted is to see to it that the estimated wear and tear of the amenities of the association is accurate when it will be compared to its real-life depreciation. A natural disaster or any other business emergency can also have a major impact on the physical assets of the association.

  • The Update with No Site Visit – this type of reserve study is recommended to be conducted every two years or so for the reason that it takes into account the changes in the reserve balance, interest, inflation, and legislative changes that may have affected the reserve fund.

Tip #4: Know the Terminology

The following are some words that are commonly found in a reserve study:

  • Reserve Components List – this is an itemized list of around 25 to 35 items that the association is responsible for maintaining and that will need future repairs.
  • Useful Life (or UL) – this is the length of time that a reserve component should last.
  • Remaining Useful Life (or RUL) – this is the estimated amount of time that a reserve component is expected to last before the need of replacing it arises.
  • Reserve Fund Strength – this is the amount of money that the association has restricted in its bank account that is intended for future repairs.
  • Reserve Funding Plan – this is the calculated report that reveals to the board what the association needs to do to either stay on track or to get back on track financially.

Tip #5: Act Fast

Most of these reserve studies will suggest for your association to set aside 5% to 20% of the total budget. This will still depend on the assets of the association in establishing the reserve fund. So, if your association is behind in terms of funding and you want to be able to catch up, then most of these reserve study analysts will encourage your association to increase the assessments over the course of few years instead of levying it as special assessment.

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