Keeping an HOA community running smoothly and efficiently can be an expensive undertaking. All of the common areas, amenities, community buildings, and more are under the care of the HOA. Regular maintenance and upkeep are important to keep these components in good shape. Should an emergency occur – such as a water main break or a leaky roof – the HOA must be prepared to pay for these repairs as well. That’s where the reserve fund comes into play.
A healthy reserve fund should be able to cover the costs of maintaining and replacing all of the different components the HOA is responsible for. If there is not enough money available, it has to come from somewhere; that may mean special assessments that cost homeowners even more than their usual dues. Although raising homeowner fees isn’t ideal, it can be necessary to save money in the long run, build up reserves, and protect the financial stability of the organization. The HOA can remain proactive about supporting its reserve fund in numerous ways:
- Conduct regular reserve studies. Some states require this as part of HOA guidelines, but other states don’t. Regardless, the HOA should take the initiative to have them done on a regular basis anyway. Even a slight fluctuation in expenses can throw off reserves and mean a shortfall of cash should an emergency or major project arise.
- Pay attention to results. Reserve studies look at both physical and financial analyses. It’s important to have a professional conduct these studies so that the HOA knows the results are credible and accurate. Then they can take steps to act on these findings and put initiatives in place to better fund the reserve. Ideally the reserve fund should be 100 percent funded, but certainly no less than 50 percent.
- Follow through with preventive maintenance. While you can’t predict emergencies, you can anticipate when certain components will need to be replaced such as air conditioners, roofs, pools, and more. Regular maintenance can keep these elements in good working order and also alert you to any problems. Some can be remedied with small fixes, but if they’re ignored, it can lead to larger, more costly repairs.
- Stay educated. As old board members leave and new ones are elected, make sure that everyone is up-to-date on the financial state of the HOA. Maintain accurate records and know when reserve studies are coming up. If major projects are in the works, have clear outlines of what expenses have been projected and budgeted for to use funds more effectively and ensure adequate reserves.
If your HOA hasn’t conducted a reserve study recently, is unsure how to move forward after finding out the results, or is lacking funding, talk to your property management company or a professional about the next steps to take. Ensuring a healthy reserve fund can help protect the function, integrity, and aesthetics of your HOA community.