How does the reserve fund in your homeowners association look? If your fellow HOA board members tend to look the other way, not want to deal with the reserves, or simply refuse to fund them, you’re not alone. Many Associations across the country aren’t saving enough in their reserves to make major repairs which can cause a multitude of problems. The community can fall into disrepair, you may be faced with having to enforce a special assessment on homeowners, or eventually losing control of the entire Association.
Reserve funds are not an extra expense. They are part of the ongoing expenses of the homeowners association which occur at various points in time. The plan provided by your reserve fund specialist will help you in this process. It's much more preferable that homeowners associations have a plan to set the funds aside now, on a year-by-year basis. By doing this, the Association can spread out the collection of assessments for these expenses more evenly over the coming years.
There are other important reasons that Association monies should be put into reserves every month:
As an HOA board member you probably know what a reserve study is and the importance of doing one. Equally important is that having the proper reserves in place will ensure that the long term assets in the Association (roads, roofs, pool, landscape, etc.) will be properly cared for and maintained.
Each and every homeowner’s association should have a reserve fund as part of its budget to plan and prepare for future repairs and maintenance, as well as unanticipated expenses and needs. HOA board members are responsible to make sure a reserve plan is in place for the Association, or at least ask the question about how the Board is planning for the reserves. If the Board is ignoring the reserves altogether, then it needs to actively seek out assistance to make this happen.
So, your homeowners association is contemplating doing a reserve fund study. Perhaps you are a new HOA and need to establish and start funding the reserves; or, you are an older HOA that has had a reserve for years, but it is time to update it. How many years should your HOA reserve study cover?
Well, it depends. HOA communities vary in size, age and the number and dollar value of the capital assets they own. They choose different maintenance strategies for short-lived and longer-lived capital assets. Let’s explore some of these issues.
As a homeowner or renter in a homeowners association, you know the importance of setting aside a little bit of money each month in case of an emergency. After all, you never know when you might have to replace an appliance or take your car to the mechanic. In order to effectively do this you’ve probably analyzed your budget and determined an amount that you can comfortably set aside each month so it’s there when you really need it.
The reserve fund of a homeowners association is often misunderstood by members and sometimes the HOA board as well. Some see it as a slush fund that is to be used on a "rainy day"' when the association gets low on cash in the operating account. Others, although they may understand the need to have some measure of reserve cash, do not make the connection that reserve funds are being reserved for the particular components within the community that the association is responsible for, such as roads, roofing, siding, fencing, painting, and equipment replacement.
You have many responsibilities as an HOA board member that require you to make decisions and take action. Some of the most important decisions the Board of a homeowners association has to make are financial decisions. It’s challenging to try and remember what funds from the operating budget covers and what funds from the reserve budget will pay for.
An area where a lot of HOA board members get into trouble relate to properly understanding the operating fund and the reserve fund in a homeowners association. If the two funds aren’t properly maintained a Board can be setting up the Association for failure and don’t even know it. It’s crucial that Boards understand how to use the operating fund and reserve fund, and use them correctly so they don’t find the Association in financial ruin.
“What is a reserve study and how do we do one?” This is an important question that board members should be asking in your homeowners association. If you don’t know the last time a reserve study was done in your association or why you should even do one, then you’re in the right place to learn the answers to frequently asked questions about reserve studies.