If you’re a part of a homeowner’s association or if you sit on the board, it’s likely that you’ve heard the term “reserve funds” come up more than once. Even so, reserve funds can be hard to understand. Below we’ll answer some of your pressing questions and walk you through everything you need to know about HOA reserve funds.
What are reserve funds?
Reserve funds are money set aside for maintaining, replacing, repairing, and renovating items in the community on a non-annual basis. Think of this as the funds that would repair items with a longer shelf life, like community pools, roads, community center water heaters, etc.
The proactive maintenance done to take care of community items would be covered by the operating budget, but when an asset breaks or stops functioning like it should, the reserve funds are able to cover the expenses to replace, repair, and maintain the asset.
How much should be included in the reserve funds?
An analyst will determine the projected costs of major maintenance in a community over a given period of time to help determine how much money should be set aside for the reserve funds account.
How many years should the reserve fund cover?
Because the funds are set aside to replace or repair larger items in the community with longer shelf lives, this means reserve funds will have to cover a longer period of time. National standards encourage associations to project up to 20 years of costs to repair, maintain, and replace assets.
Do you have tips on how to use a reserve fund well?
- Review reserve funds at least once a year, take member input, and make adjustments to ensure there’s consistent funding.
- Include savings for deductibles. Insurance deductibles can be costly and arise unexpectedly, so having those funds built into your reserve account will make sure you’re always ready to pay off that bill.
- Weigh the costs properly. Spending more on a heavy-duty roof on the community center may have a higher upfront cost but last longer than other materials and could save you money in your reserve funds.
Reserve funds are crucial to a community’s longevity. Taking care of the neighborhood amenities and preparing for maintenance costs years down the line is just one of the important duties of an HOA board. If you still have questions about HOA reserve funds, contact Prism Realty Management. We’re here to make managing your association a breeze. Learn about who we are, the services we offer, and our process, then give us a call at 512-676-5842.