Creating a Long-Term Reserve Study That Works

A well-funded reserve is one of the most important financial aspects of a community association. It ensures that your Board can undertake any long-term or planned maintenance projects without having to impose special assessments. 

To ensure you have a reserve that is right for your community, you need a well-crafted reserve study. More than a regulatory or best-practice requirement, a long-term reserve study provides the roadmap for protecting your community’s property values and common areas. 

Learn everything you need to know about creating and updating your long-term reserve study below. 

What is a Long-Term Reserve Study

Long-term reserve studies assess the state of your community’s major common area components. These often include roofs, siding, pavement, elevators, mechanical systems, and amenities. 

The long-term reserve study will specify each component’s expected lifespan and replacement cost. A good reserve study will help your Board determine how much your community association needs to set aside each year for the reserve to fund future repairs and replacements. 

A strong reserve study will include the following. 

• A physical analysis of the common area components. 
• Cost estimates adjust for inflation. 
• A financial funding plan tailored to the association. 
• A multi-year outlook, aiming for 20-30 years.  

Why Long-Term Planning Matters

Planning for long-term maintenance and repairs is essential for your community’s financial health. Without this planning, your community association could fall into a reactive cycle, postponing maintenance until emergencies and issuing special assessments when major repairs become unavailable. Homeowners do not want frequent special assessments and will lose trust in the Board when they occur too often. 

Instead, a long-term reserve study can solve these issues by allowing the Board to do the following. 

• Spread costs fairly across homeowners over time. 
• Reduce financial surprises. 
• Maintain infrastructure proactively. 
• Demonstrate fiduciary responsibility. 
• Strengthen homeowner, buyer, and lender confidence. 

Key Elements of a Reserve Study that Works

Understanding why reserve studies are important is just one part of the equation. Your reserve study will also need to include the following elements. 

• Accurate component inventory: Every reserve study must have accurate data, including all major common area components. These should be clearly identified, measured, and evaluated. 

• Realistic cost projections: A reliable reserve study should account for construction, material, and labor costs changing over time. Thus, it should account for inflation, regional pricing trends, and realistic replacement timelines. 
• Appropriate funding strategy: Your Board will need to choose between a fully-funded plan and a baseline funding plan. Fully-funded plans aim to cover 100% of projected reserve obligations. On the other hand, baseline funding will keep your reserve balance above zero while minimizing any special assessments. 

The team at D.H. Bader Management can walk your Board through every step of the reserve study and reserve funding process. Our experience and comprehensive financial planning will help your community association build a reserve that protects assets, promotes transparency, and provides peace of mind.