Your Reserve Funds are special resources set aside for larger projects and capital improvements. Having an adequate reserve prevents you from having to explore other funding options for these typically costly ventures. There are a few ways you can strengthen these funds in order to fully capitalize on them.
Manage Your Funds Properly
One of your biggest responsibilities when running an HOA is managing funds. You have to plan, budget, and allocate resources appropriately, and keep track of all money coming in or going out for periodic reports. Mismanagement of funds (intentional or unintentional) can land you and your board in hot water. Part of budgeting is setting aside excess funds to build your reserves.
Routine Maintenance vs Unexpected Repairs
General maintenance and upkeep of HOA property is a planned cost, and should be paid for out of the regular budget. Whether it’s minor repairs, treatments for your swimming pool, etc., anything that is typically recurring or a result of everyday wear and tear falls under this category. Your reserve funds should not be used for these projects, nor for Capital Improvements.
Reserve Funds should be allocated toward unexpected expenses. Large-scale repairs due to weather damage, faulty equipment, major irrigation or landscaping fixes needed as a result of shifting ground, etc. are some of the items that fall into this category.
Calculate the Correct Level of Funds Needed
Most associations actually don’t have a big enough Reserve Fund. The appropriate amount is unique to your community and depends on the lifespan of your major capital systems. While the process may sound daunting, it’s really fairly simple. Assess the lifespan of your property and capital systems, determine how long before deterioration occurs, and estimate the amount of money it will take to complete repairs. Then, calculate how much money you need to set aside annually (or monthly) to build to that number.
Complete a Reserve Study
In a previous article, we mentioned a “Reserve Study,” which is a long-term schedule of potentially expected or common repairs or improvements associations generally face. This is going a step further than simply calculating the level of reserve funds you may need. You should not do the study yourself, it should always be done by a professional. Contact a financial advisor or an HOA management company if you don’t already have either one. Mismanagement of reserve funds is a serious matter, and can do worse than anger your residents—it could land you in legal trouble.
Want to learn more about how professional HOA management can help you properly manage your reserve funds and avoid legal and personal entanglements? Contact us and we’ll be happy to help!