What Every Community Association Should Know About Reserve Studies

Imagine this: Your community’s pool is reaching the end of its life. You know it’s going to need repairs soon, but the funds just aren’t there. Sound stressful? It doesn’t have to be. That’s where a reserve study comes in. It’s a tool that helps community associations plan ahead—so when it’s time for major repairs or replacements, like that pool, the funds are ready and waiting. Let’s dive into how reserve studies work and why they’re essential for any community.  

What Are Reserve Studies and Why Are They Important? 

Think of a reserve study as your community’s financial blueprint. It evaluates the condition of common areas—like the roof, parking lot, or HVAC system—and projects when they will need repairs or replacements, and how much it will cost. By planning ahead with a reserve study, your community can avoid unexpected financial surprises and maintain financial health without sudden increases in dues or special assessments. 

Types of Reserve Studies    

There are different types of reserve studies, each tailored to where your community is in its lifecycle. For a new development, an initial study helps set the stage by projecting future needs. For established communities, a full, on-site study offers a detailed snapshot of where things stand today and what’s coming down the road. 

Inventory of Common Elements    

A key part of any reserve study is creating a detailed inventory of your community’s shared elements—like roads, clubhouses, or playgrounds. This inventory provides a clear picture of what needs to be maintained, setting the stage for assessing how long each element will last. 

Estimation of Useful Life    

Every element in your community has an expiration date, so to speak. During this part of a reserve study, professionals estimate how much longer things like roofs, roads, and pools will last. This estimation helps set a timeline for when repairs or replacements will be necessary, guiding the development of both the funding plan and maintenance schedule. 

Cost Projection for Repairs and Replacements    

The next step is predicting how much those future repairs or replacements will cost. Let’s say the roof over the clubhouse is projected to need replacing in 10 years at a cost of $100,000. This gives your association plenty of time to save up, so when the time comes, there’s no need to panic—or raise dues overnight. 

Funding Plan Development    

Once all the numbers are on the table, the real magic happens: a funding plan is created. This plan ensures your community is financially prepared for upcoming expenses, without resorting to special assessments or rushing for loans. It’s the roadmap that keeps everything running smoothly. 

How to Conduct a Reserve Study 

So how do you actually conduct a reserve study? Let’s break it down step by step. 

Hiring a Qualified Reserve Study Professional  

The first step is bringing in an expert. Reserve study professionals specialize in understanding the needs of communities like yours. They’ll evaluate your property, assess the lifespan of key elements, and put together a comprehensive report. Choosing the right professional ensures your community gets an accurate picture of its financial future. 

Reviewing and Approving the Study   

Once the reserve study is complete, it’s important to review the findings carefully. This is where your community board might feel overwhelmed—are the cost projections realistic? Does the timeline for repairs make sense? But don’t worry, you don’t have to navigate this alone. Management Plus offers expert consultation services to help you through the review and approval process, ensuring everything is in line with your community’s needs. 

Communicating the Results to Owners  

Transparency is vital when it comes to managing a community. Once the reserve study is finalized, it’s important to communicate the results to homeowners. For instance, if dues need to increase slightly to meet future needs, explaining the why behind the change helps maintain trust and avoids surprises down the line. 

Funding and Lending Options for Reserve Studies 

What happens if your reserve fund is running low and you’re facing major repairs? Don’t worry—there are funding and lending options available to help. 

Threshold Funding vs. Full Funding  

Let’s say your association is deciding between threshold funding and full funding. With threshold funding, your association sets aside just enough to cover imminent expenses. It’s the bare minimum approach. On the other hand, full funding means planning for all future needs, ensuring your community is always prepared. While it requires more upfront saving, full funding leads to a much healthier financial outlook in the long run. 

Special Assessments and Loans  

If reserves are lower than expected, your community might need to consider options like special assessments or loans. While these options can fill the gap, they should be used as a last resort to avoid putting too much strain on homeowners. 

Frequently Asked Questions (FAQs)  

Reserve studies can seem daunting, but they don’t have to be. Here are some common questions that board members often ask: 

Is a Reserve Study Legally Required?   

In some states, reserve studies are legally required to ensure communities maintain adequate funding. While Ohio does not explicitly require reserve studies, state law does require community associations to maintain reserve funds for future repairs and replacements. Conducting a reserve study is a best practice in Ohio to ensure proper financial planning and avoid unexpected costs. 

What Happens if an Association Fails the Reserve Requirement?  

If a community doesn’t meet reserve funding requirements, it could face serious consequences, including loan denials or financial instability. Keeping the reserve fund healthy is the key to maintaining long-term financial security of the community. 

How Much Margin Do You Need for Reserves?  

Experts generally recommend that community associations maintain a reserve funding level of 70% or higher. This means the association should have at least 70% of the funds it needs to cover projected future repairs and replacements, ensuring there’s enough money set aside to prevent financial strain on homeowners. 

Management Plus Helps You Stay Financially Prepared   

Reserve studies are essential to maintaining a financially healthy community, but they can also be overwhelming. That’s where Management Plus comes in. Our team of experts can help you manage not just your reserve study, but the physical, financial, and administrative aspects of your community as a whole. 

Reach out to Management Plus today to learn how we can help your community thrive! 

Looking for more tips on how to keep your community association financially secure? Follow us on Facebook and LinkedIn for the latest updates. 

Satisfied with the Management Plus difference? Leave us a review on Google!