Last time we discussed why we need a plan and we promised to get you started in continuing articles over four issues. “THE PLAN” step one; A reserve study is an essential part of any good plan. We would assume your HOA already has a reserve study in place, but you know the old saying about “assume”, so let’s discuss it anyway.
Why does our Association need a Reserve Study?
All physical assets deteriorate with time and most of the “major” components which an Association is responsible to maintain will require repair or replacement in a predictable time frame. A Reserve Study makes it possible to prepare well in advance for these inevitable expenses, spreading out the reserve contributions evenly over time, rather than funding reserves through special assessments or loans. One comment we have heard time and time again is “We do not want to raise the dues now, that money is not needed for 15 years”, please, please do not be that Board. Poor financial planning (i.e., failing to set aside sufficient funds in advance for predictable reserve expenses) unfairly penalizes one unlucky set of Association members at a particular point in time. It’s not fair and it’s not good financial leadership.
What is a Reserve Study?
A Reserve Study is in most cases, is a 30 year cost projection for the repair and/or replacement of all major components for which the HOA is responsible to maintain based on industry standard cost of that repair/replacement factoring in inflation, etc. This is combined with the funding requirements to ensure the funds are available when needed.
Sounds simple enough, are you done yet, not so much huh? This is one of the portions on “THE PLAN” where we recommend using a trained professional. You can find information regarding what exactly denotes a professional at http://www.caionline.org/career/designations/Pages/rs.aspx. For finding a specific professional in your area, contact your local CAI chapter or you might even find a reserve specialists within one of our issues. Wherever you find your professional, check their references and reputation carefully. This report is a major components in the planning for your community’s financial well being and to move forward without one, let’s just say unwise.