Why Does My HOA Need a Reserve Study?

By: ​Dianne Donnelly – CMCA, AMS, Park Pointe Management Services

Why does our community need a Reserve Study? If something major needs repaired or replaced, we’ll figure it out at that time, or hope we’ve been setting enough funds aside in our Reserve Account.

​Reserve Study requirements are different from state to state. Some states require a reserve study be completed, how often it must be updated, and what percentage of funds, based on the study, must be in the HOA’s Reserve account. Idaho does not currently require a reserve study to be completed for a homeowner’s association, but don’t be surprised if that changes in the near future. Just because it’s not required does not take away from the importance of having one completed, and the enormous benefit to your community.

​As an elected Board Member, one of your most important responsibilities is Fiduciary Duty. In a Homeowners Association, that means a duty to make decisions and act in the best interest of the association, and its subsequent members. 

Taking action, as a Board, shows the community that you are being fiscally responsible and looking to protect the assets of the HOA, not just for the period of time you are on the Board, but for years in the future. Having a Reserve Study completed ensures the HOA increases the value of the property, in whole, over the long-term and ensures that the financial plan is intentional and not reactionary.

Not planning for the future can be short-sighted and can put your community in a very difficult financial position when things begin to deteriorate, or you have large, unexpected repair or replacement costs. 

What is a Reserve Study?

At its core, a reserve study is a financial projection of income and expenses over a pre-determined period of time (I.E. 30 Years). A proper assessment of physical assets by an experienced professional is vital in a Board’s process to ensure responsible planning for the future repair and/or replacement of a community’s assets. There are many factors that make up a reserve study, which have a compounding effect on those expenses and how those expenses will be maintained in the future.
 
Key Items that make up a Reserve Study

• A physical inspection, evaluation, and analysis of assets the community maintains, repairs, or replaces.
• A review of reserve balances, contributions, and financials.
• The development of a comprehensive list of maintenance and replacement items, over 30 years, and the schedule/timeframes for which they are to be maintained.
• The creation of a financial plan to fund future repairs/replacements and the suggestion of contributions necessary to put the HOA in a good financial position to maintain all components.
• A clear and concise transfer of all information from the reserve study specialist to the Board of Directors, HOA management company, etc.

 
A Reserve Study should be updated every three to five (3-5) years to account for changes in inflation/interest rates, changes in the rate of deterioration of assets, changes in code /ordinances, changes in Board composition resulting in scope of work changes, and changes in preventative maintenance practices.
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There are many great Reserve Study specialists in Idaho. Many thanks to North Star Reserves and Aaron Lombardo for assisting with this information and being a great resource and company to work with on Reserve Studies!