What is a Reserve Study and What Can I Do About It?
Ever wonder who pays when your building needs a new roof or has to get repainted? If you thought your annual dues seemed high for just regular maintenance, that’s because some of that money is going into the reserve fund. That’s the savings account your HOA uses to pay for large projects it knows is coming.
For example, if the study shows that you’ll need to replace the roof in 25 years and it’ll cost $50,000, the HOA needs to collect $2,000 per year. The study helps the homeowners association plan for when the areas they’re responsible for need to be replaced or serviced.
You might know your HOA board is full of super nice, competent people who definitely have this under control. But it’s probably a good idea to check in on the reserve study anyway. Think about it. If there’s no reserve study, how will the HOA know how much to charge to keep the reserve funded? And if the reserves not funded you’re looking at lower property values and the chance you and your neighbors might have to pay for that new roof all at once. Or you could be overpaying your annual dues and that’s extra money you could be putting toward paying off your mortgage earlier.
So how do you keep your finger on the reserve fund pulse?
Serve on the board
Your HOA is made up of volunteers. So, it's likely they're always looking for people to serve on the board and to lend whatever skills they can to the association. Check and see when your board elections are and run for an open position. That will give you the ability to have a greater say in how you reserve fund is funded and used.
Go to HOA meetings
If you don't have the time to sit on the board--or if you don't get elected--you should at least make a point to go to all the homeowners association meetings. This is a great forum for you to voice any concerns or objections.
Not that you have to be a know-it-all, but you might want to make sure your HOA knows a couple of things:
Get a study done yearly
The economy is changing all the time. And there’s inflation. If you just stick to the budget you made today for the roof you’re buying 25 years from now, you’re probably not going to be able to afford it. If the board members need some convincing that it’s worth it, just let them know doing an annual study helps protect them from liability if something goes wrong.
Hire a second expert
If you need an estimate on something that’s a little more complicated to assess--like drainage issue or the structure of the building. So if you have a pond in your neighborhood, you might want to hire a specialist to check and see how often you’ll have to repair any drainage-related things.
Check their credentials
Interview a couple of study providers and ask about their qualifications. They have experience and references. Professional reserve analysts--the highest credential for the industry--should also be members of the Association of Professional Reserve Analysts.
Keep reserve funds separate
Ok, ok, this isn’t exactly about the study. But you should also check that your reserve funds aren’t being used for operating costs. That goes back to the whole not wanting to have to come up with $50,000 by next week thing.
So, get out there. Get involved. And start enjoying your neighborhood amenities knowing they're covered by your reserve fund.