Having a
reserve study for your organization is always strongly recommended with the
principle that the organization should only live within their means. But of
course, preparing for future costs can be very complex which makes your reserve
study as one of the most important guideposts that you can follow in order to
make sure of your community’s financial security and also be able to protect
home values. This article will guide you through the steps to make most of your
reserve
study.
Associates
are indeed responsible for a number of components that only have a limited
useful life. So, when it comes to figuring out when each one is going to need
repairing and also when it comes to deciding how to strategically budget for
such happening, it is best that this will be left to people who specialize in
such field and have already garnered years of experience.
This is the
phase where your reserve study experts and your management company will be able
to help. And if your community has a reserve study in place, you will be able
to work with your board and community manager to ensure that your budget and
your community’s savings will align with the plan.
How
to Get the Most out of Your Reserve Study
Although you
may find providing for future costs without having to levy special assessment
as daunting, this can still be possible. Here are some tips that are designed
to help boards to get the most out of their communities’ reserve studies.
Tip #1: Make Sure the Reserve Study is Done by an Expert
Your
association should be able to hire a professional who follows that National
Reserve Study Standards. This will make sure that the standards are being
followed and that the language will remain consistent from one reserve study to
another.
Tip #2: It Should be a Regular Process
By having conducted regular reserve studies, this will see to it that the association is indeed getting the most out of its money because all of the information will remain up to date. For associations that are single-family, it is recommended to conduct reserve studies every three to seven years.
And, if your association has not discussed conducting a reserve study recently, then you should try to talk to your managing company and board about when your next study will be conducted, and then have it added to your association’s project plan.
Tip #3: Know All the 3 Types of Reserve Studies
You should
note that there are three types of reserve studies, and these are the
following:
- The Full Reserve Study – this is the most expensive out of
all the three reserve studies. Every association needs to conduct at least one
of these after all of the amenities and roads have been built. This reserve
study is comprehensive as it reviews the association’s items that will incur
wear and tear. - The Update with Site
Visit – this is the
type of reserve study which boards should order to be conducted every three to
five years. In this type, a reserve study specialist will come to the
association and is going to do a basic review of the association’s component
list in order to make sure that the association’s reserve fund is keeping up
with the demands of the HOA.
Although
conducting semi-regular site visit can tend to be an unnecessary extravagance
to a lot of board members, you should keep in mind that these site visits are a
great help for reserve study analysts in ensuring that they did not miss
anything during the Full Reserve Study. By visiting the association, will aid
them in the analysis of any additions that were made since the last study.
One other important reason to have these types of studies regularly conducted is to see to it that the estimated wear and tear of the amenities of the association is accurate when it will be compared to its real-life depreciation. A natural disaster or any other business emergency can also have a major impact on the physical assets of the association.
- The Update with No Site
Visit – this type of
reserve study is recommended to be conducted every two years or so for the
reason that it takes into account the changes in the reserve balance, interest,
inflation, and legislative changes that may have affected the reserve fund.
Tip #4: Know the Terminology
The following
are some words that are commonly found in a reserve study:
- Reserve Components List
– this is an itemized
list of around 25 to 35 items that the association is responsible for
maintaining and that will need future repairs. - Useful Life (or UL) – this is the length of time that a
reserve component should last. - Remaining Useful Life
(or RUL) – this is
the estimated amount of time that a reserve component is expected to last
before the need of replacing it arises. - Reserve Fund Strength – this is the amount of money that the
association has restricted in its bank account that is intended for future
repairs. - Reserve Funding Plan – this is the calculated report that
reveals to the board what the association needs to do to either stay on track
or to get back on track financially.
Tip #5: Act Fast
Most of these
reserve studies will suggest for your association to set aside 5% to 20% of the
total budget. This will still depend on the assets of the association in
establishing the reserve fund. So, if your association is behind in terms of
funding and you want to be able to catch up, then most of these reserve study
analysts will encourage your association to increase the assessments over the
course of few years instead of levying it as special assessment.
