Financial health is vital in all aspects of a homeowner’s association (HOA) to thrive. For that reason, associations should have two major financial accounts, one would be the primary operating fund and the other would be the reserve fund.
WHAT IS A RESERVE FUND, AND WHY IS IT NECESSARY?
Operating funds are created to handle the association's day-to-day expenses, including small maintenance services and other routine workups. Though this fund is used for such issues, it is not meant for costly services such as repairs needed from weathering or natural disasters, building new structures or common areas, painting, refurbishing, and so on. Therefore, the HOA must have a reserve fund that serves as a financial ground to maintain the larger issues regarding the assets of the community.
In order to ensure suitable funds for these anticipated future expenses, your HOA reserve fund needs to perform a reserve study.
WHAT IS A RESERVE STUDY?
A reserve study is a process of structuring an evaluated list of items proposed in a report that your HOA will be expected to set aside funds for to maintain financial health. Each state has different laws/requirements for associations, and many require both annual reserve studies and reserve accounts. Unfortunately, many associations have dramatically underfunded these accounts which have led to other severities. This study generally institutes a thorough inspection of all the community assets and features combined with a monetary evaluation, which will help foresee future financial responsibilities. Because reserve studies require a lot of technical expertise, they are usually carried out by external professionals.
RESERVE STUDY PERFORMED
The reserve study is normally overseen by an HOA’s management company, or by a third-party company specialized in reserve studies. After the onsite inspection has been completed and the fiscal health of the HOA has been assessed, a joint report will be presented to the association’s
Board. The report will identify the lifespan and the cost of maintenance of the areas required to be maintained by the HOA. It will also conclude with strategically evaluated recommendations for the reserve account and a funding plan. It is important to annually conduct this study to refrain from financial instability in your community.
For more information on any of these processes, please contact our Director of Community Associations, Dominic Cirillo. Atlantic & Pacific Management has over 40 years of experience serving HOA communities in California with top-tier customer service. We would be happy to
extend our expertise to your HOA community.