What Is The Intent Of A Reserve Study?

A reserve study is an important aspect of homeownership or condominiums associations. It's a comprehensive physical evaluation report on the common structures and analysis of reserve funds. Through a reserve study, the association can project reserve contributions to ensure there are enough funds for future repairs and replacements.

The association has to budget and determine how to fund the budget. There must be enough funds for ongoing and predicted expenses and a savings account for future use or unexpected expenses. The account is called a reserve fund. The planning on how to use the funds is called a reserve study and serves the following purpose:

It Promotes Good Financial Health

The major purpose of a financial study is to evaluate the reserve's financial status. A finance professional conducts a reserve study of the accounts. This ensures that the association knows the amount of funds available and can take action to avoid underfunding. This averts a financial crisis in case of unexpected expenses or future spending. Having enough funds for HOA or condo projects mitigates the board from imposing special assessment alternatives, such as acquiring a loan that can hurt the members financially.

Provides Guidelines for Property Management

Apart from finances, a reserve study includes an analysis of the property to evaluate the wear and tear, identifying areas that require repair and maintenance. Maintenance ensures that facilities such as sidewalks, swimming pools, and common areas are renovated so residents can enjoy using them. Without a reserve study, it's difficult to manage the facilities.

Fewer Requirements for Special Assessments

Special assessments are funds that the HOA or condominium associations collect from their members to cater to unexpected expenses. When a facility is well maintained, it's easy to avoid unexpected repairs. A reserve study helps to identify worn-out facilities so they can be repaired on a schedule. Although emergencies are unavoidable, consistent maintenance reduces emergency occurrences, hence the fewer special assessments.

Who Conducts A Reserve Study?

Some HOA and condominium associations like to conduct their reserve studies. However, it's important to hire experts to conduct reserve studies for condominiums and HOA. Experts can identify the areas that require repair and maintenance and advice on the best forms of repair. For financial analysis, a financial expert can help in proper budget estimation and conduct a financial report to show how the funds have been used. This provides clarity to all members to promote trust and transparency.

 How Often Should You Do One? 

The frequency of conducting a reserve study depends on specific state laws. Some states require HOA to conduct reserve studies every three years. It's therefore important to check with your state's law requirements. In states where the frequency is not dictated, it's wise to have reserve studies often for effective decision making.

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Created on Apr 20th 2022 07:58. Viewed 89 times.

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