If you’ve read our other articles, you know what a reserve study is and why they’re crucial for all homeowners associations. These studies, performed by a professional reserve analyst, serve as a map of sorts to prepare your association for financial success.
We’ve compiled a list of quick tips for optimizing your reserve study.
Have Your Reserve Study Done by a Professional
A sufficient reserve fund helps prevent financial catastrophe, and a reserve study is a great way to properly plan your reserves. Reserve study professionals, also known as reserve analysts, accumulate experience and education in order to gain certain licenses and certifications from the industry. They’re literally the experts on these types of studies. Hiring a professional will help ensure your study is done correctly and thoroughly, providing you with a sense of financial security and peace of mind.
Conduct Your Reserve Studies on a Routine Basis
While you typically only need a full-scale, onsite study one time, you should conduct smaller-scale studies regularly to ensure you’re maximizing your budget. A smaller onsite study should be conducted about every third year, and annually a small offsite study is highly recommended. Your association or community manager can help you plan how often to conduct studies and how to find the right professional analyst.
Understand the Lingo
It’s important for you to be familiar with in regards to reserve studies:
Remaining Useful Life (RUL): the expected lifespan of an amenity before it will need repairing or replacing.
Reserve Component List: a detailed list of amenities and common areas in your association you may need to make future repairs to.
Reserve Fund Strength: the current size of your reserve fund in relation to your needs as an association.
Reserve Funding Plan: a recommendation to your HOA board on what action should be taken to keep your reserve on track or increase your funds.
Useful Life (or UL): an analysis of the amount of time each of your amenities will last.
Formulate a Plan of Action to Add to Your Reserve Fund
After the study is complete, the analyst will recommend a short-term and long-term plan for how much needs to be added to your reserve fund. At this time, you’ll need to create an action plan for where and how you can find those funds.
This may be as simple as raising dues—temporarily, or over a few years—and setting aside that extra income towards your reserve. Although this is an easy action to take, your residents will not be thrilled. No one likes to be charged more money! Be sure to communicate the reason with your homeowners and remain transparent with where the increase is going, and stress that a possible alternative would be a special assessment (which they’ll hate more than temporarily raised dues).
A sufficient reserve fund is all about prevention—if your community starts falling apart and you don’t have enough to cover the repairs, your property values could be affected. You’ll be digging yourself into a hole that won’t be easy to climb out of. It’s the difference between saving ahead of time versus putting yourself in debt.
Don’t Underestimate Homeowners
Homeowners are growing smarter and more educated about HOAs every day. Don’t assume that your residents aren’t aware of certain procedures or that you can gloss things over for them. Homebuyers these days are likely to ask for your association’s financial statements before signing, and if they see your reserve fund is low, they may walk away from the sale.
A substantial reserve raises the perceived value of your community to potential buyers, alleviates worry among current residents, and gives you peace of mind that your association is covered. Conducting a reserve study, and then setting out a plan of action from those findings, is the best way to ensure your fund is enough.
Have more questions about optimizing your reserve study, or are curious about the types of studies and which one is right for you? Read more on our blog or contact us and we’d be happy to help!