The Best Way For You To Interpret The HOA Reserve Study

As a board member, one responsibility is to review your HOA’s reserve study and interpret it so you can make proper financial decisions regarding the collection, adjustment, and allocation of reserve funds.  Unfortunately, reviewing the reserve study isn’t much fun and many think it’s not easy to understand either.

Outlined below are a few ways in which you can interpret the HOA reserve study and apply it appropriately for the benefit of your association.  Consider using the community website to share what you learn here so other board members may be informed.

 

HOA reserve studies are normally comprised of common areas in the community such as street lights, gates, basketball courts, and pools.  Additionally, estimates are included on the costs needed for the repairs, maintenance, and replacement over time.  They also involve estimations on the current monetary value of these common assets.

It’s recommended that your HOA conducts an annual review of the roofs, paint, electrical panels, and other major parts of common amenities.  In order to get an accurate, comprehensive report, have experts in finance and engineering study these areas so the interpretation part is simple.

 

Homeowners associations that neglect to plan for the future are destined to drain their reserve funds.  If a gate needs to be replaced in 20 years, the board should divide the cost by 20 and set aside that amount each year.  For instance, the gate might cost $20,000 so the HOA needs to set aside $1,000 every year.  By the 20th year, the board will have the amount they need and not face a financial crisis.

As you interpret the reserve study and plan for the future, you should account for an inflation rate of at least 3% per year.  Use the community website to notify HOA members about the outcome of the reserve study so they fully understand the importance of having sufficient funds!