It’s recommended that HOA communities have regular reserve studies—but what happens once your study is complete and the final report is generated? Frankly, it can be daunting to sit down with this imposing document, especially if you don’t have a background in finance.
And yet, HOA Board members are obliged to review the reserve study and use it to do some appropriate financial planning, fulfilling their fiduciary responsibilities to the Association.
As you prepare to sit down with your reserve study, here are some tips for interpreting it properly.
What’s in Your HOA Reserve Study?
First of all, take a step back. Make sure you understand what a reserve study is, in the broadest terms. Most basically, the reserve study is a list of all your major common areas—pools, streets, tennis courts, roofs, clubhouse facilities, whatever else. The reserve study should identify the basic cost of repairing, replacing, and maintaining these common assets as needed. The idea is to make sure you have enough money “in reserve” to handle these maintenance issues. A reserve study is recommended every three years or so.
As you review the reserve study, the first thing is to make sure it really does list all the common assets; work with the rest of the Board, and with your community manager, to ensure that nothing was left off.
Next, run some basic calculations. For example, let’s say it’s going to cost you X amount of dollars to replace the roofs on all common buildings, and that’s something you’ll need to do in 10 years. Divide X by 10, and that tells you how much you need to contribute to the reserve fund each year to ensure that you’re saving for the roof replacement. Compare this number against your actual reserve study contributions to see if your HOA is saving properly or not.
Of course, there’s a little more to it than that—you have to account for inflation, for one thing. But this should give you a basic sense of what the reserve study is and how it should be used.
Consult with a Reserve Study Specialist
To dig a little deeper—and to make sure you’re on the right track with your HOA reserve study—consider meeting with an expert. Your community manager can help you out here. With any questions, reach out to the HOA management team at Kuester Management Group today!