The short answer to the question above is an emphatic yes—every community should conduct an association reserve study, every few years at least. (Doing it annually is optimal, though, admittedly, time-consuming.) But what is a reserve study, and why is it important? Understanding these things will help you realize why a reserve study is such a vital part of your responsibility, as a board member, to create an environment in which residents and investors will see a good return on their property value. Nowadays mortgage underwriters will also want to review your community reserve fund balance to make sure there is enough money to cover the repairs and replacements.

An association reserve study is a financial report that covers every major capital system in the community. Depending on the nature of your community association, this might include public golf courses, parks, common outdoor areas, the walls and roofs of your condos, and so forth. A reserve study evaluates how long these assets will last before they need to be replaced or significantly overhauled, and how much it will cost the association to do this when the time comes.

Once these factors are determined, it’s fairly simple to calculate how much money the association has to set aside for other matters that might arise throughout the year; basically, you just need to divide the estimated replacement cost by the number of years the thing is projected to last.

The benefits of a study like this are numerous, and the most obvious one is that it helps with long-term planning, but it’s also something that could benefit residents; knowing how much reserve money the association has will prevent you from having to ask your residents for any special assessments that aren’t really needed. And, a reserve study will make the place more attractive to investors, who look for an association that has these kinds of solid, long-term financial plans. So while conducting an association reserve study may seem like a lot of effort, the rewards make it more than worthwhile—it is downright essential.

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