What is a reserve study and when do I need one?

Budget problems don’t go away, they just get bigger… just like a slow leak if left unattended you could find yourself in some pretty fast-moving water.
You need to always consider your association’s reserves. Your reserve fund is there to cover future needs and should always stay at an optimal level.
At this time of year, we often encourage our Boards to conduct a reserve study.

What is a reserve study?

To analyze your reserve funds appropriately, you need to conduct a reserve study. A reserve study is a budgeting tool that analyzes an Association’s financial health in relation to its capital assets and current reserves.

It helps determine how much money an Association should have in reserve at a given time to cover future capital expenses.

A good general rule is to maintain at least a 70-percent funded reserve fund at all times.

CSI President, Nicole Grandelli says “The main purpose of a reserve study is to analyze the overall components of an HOA to try and determine how long it will be before assets will need repair or replacement and estimate the cost of such upkeep.”

Reserve studies also serve to enable the Board of Directors to analyze the overall strength of the reserve fund.

OK, but what does that mean to me?

Want a real-world worst-case scenario? Think about the 2021 partial collapse of the Champlain Towers South in Surfside, Florida. “Boards need to be aware that it is their fiduciary duty to properly reserve funds for repairs, but also to make sure they are repairing broken buildings and common areas and not deferring the maintenance.”

If you’re not sure where to start, ask your Community Manager. CSI has four companies we work with frequently and can help you solicit bids so you can make a decision on which company best meets the needs for your community.

While each community and study is different, the reports are thorough and provide a true overview on what is happening; what needs attention now, and in the future including everything from sidewalks to vinyl siding.

“A reserve study can cost between $1,500 – 4,000 depending on the size of the HOA. But in some cases, you really can’t afford not to do it. The study is an amazing service, like a crystal ball that can help you avoid disaster and plan for the future,” said Nicole.