Reserve Studies - The Complete Guide is 436 pages explaining the concepts and process for making a reserve study. For more information and to order, click here.

 

 

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Reserve Studies for Homeowners Associations

 

 

HOA Reserve Fund Study

Reserve studies for homeowners associations often include a number of non-structural components, as well as structures of any common area buildings and their replaceable components.  Accordingly, HOA reserve study Associations can include a wide variety of components.  And, often times, the association's governing documents provide little guidance on the association's maintenance responsibilities.  As an example, homeowners associations frequently have extensive landscaped common areas.  Some associations contract with independent landscaping companies to maintain the common area landscaping.  Other associations may hire employees and use "in house" staff to maintain the landscaped common areas.  In that case, the association is likely to have considerable landscaping equipment that must be included in the capital reserve study.  While this is not a "contractual" obligation like a condominium association's maintenance of condominium buildings, such equipment is still an appropriate reserve component, as the association must have a financing vehicle for replacing the equipment as it wears out. The reserve professional must be familiar with a wide variety of components and their normal major repair or replacement cycles.

The purpose of HOA reserve study is to accumulate the HOA reserve fund to provide sufficient funds at the time the major repairs or replacements must be made.  However, many factors can affect  the normal repair or replacement cycle of components, causing them to either wear out sooner than expected, or to last longer than expected.  As a result, the HOA reserve fund becomes an estimate.  The only real goal that can be achieved with them reserve study is to accumulate approximately the right amount of money at approximately the right time.  Estimated component cycle lives are normally based on industry averages or manufacturers warranties.  As components get closer to the end or their life cycle, it becomes easier to predict when the replacement should occur. 

Many HOA reserve study associations maintain streets and drives.  Most analyses of asphalt streets assume a normal life of 20 years for the asphalt surface.  Depending on local conditions, that life may also be based on the assumption of minor maintenance activities such as annual crack fills and slurry seals on a three to seven year cycle.  Many pavement studies then assume an overlay of new asphalt over the existing surface.  This can often extend the life for another 20 years.  For any extensive streets, it is wise for the association to engage an engineering company to perform a pavement study.  This serves to both create an appropriate maintenance plan for the streets as well as  provide a guide to anticipated future costs.  The financial impact of the pavement study should be incorporated into the reserve study.  If no pavement study exists, it may be difficult based on condition to assume any life different from normal life cycles.  But, deterioration during the last few years of the cycle generally provides better visual evidence of when the actual replacement should occur.  It generally occurs at a time fairly close to the original estimated life.

This same type of evaluation must be performed for each separate street, equipment, or building component that requires major repair or replacement.  The HOA reserve study report summarizes this evaluation of all the separate components, and turns the component analysis into a financial projection.  This HOA reserve fund study becomes the long range budget for the association.  This report is used to accumulate the HOA reserve fund to provide monies for those future major repairs and replacements.

At Facilities Advisors, we are dedicated to providing the most accurate HOA reserve study and HOA reserve fund possible.