Reserves are a planning tool used by community associations to help prepare for large repair and replacement projects over a long period of time. Reserves allow the board to offset the ongoing deterioration of the common area components with reserve funds to ensure their timely repair or replacement. Typical reserve components consist of roof replacement, painting & concrete restoration. Reserves that are prepared in accordance with the National Reserve Study Standards include three key results:
- A component list detailing the timing and scope of each project.
- A measure of the reserve fund strength.
- A recommended funding plan.
A well-crafted reserve funding plan will ensure the irregular reserve expenses are offset by ongoing, regular reserve contributions, avoiding the need for special assessments, bank loans, or deferred maintenance.
The main objective of reserves are to minimize the risk of “surprise” expenses, deferred maintenance, special assessments, and in the worst cases a potential drop in property value. By looking at a long timeframe typically between 20-30 years or more, having a reserve account will illuminate projects down the road that can easily be overlooked or ignored in the present day.
The sooner an association can begin preparing, the less likely the owners will be stuck with higher maintenance fees later on, or worse special assessments. An association with a healthy reserve account can take care of projects when they become necessary.
