Understanding Reserve Funds: Why Your HOA Needs One
Every homeowners’ association (HOA) Board wants to build a thriving community, but without the right financial planning, the best intentions can cause problems. There are numerous financial responsibilities associated with running a community. Daily operating budgets keep the lights on, but what about the big-ticket repairs and upgrades that your HOA may need every couple of years? That’s where the reserve fund comes in.
A well-funded reserve fund is not just a financial cushion; it is the key to creating an appealing, financially stable community. From resurfacing roads to repairing roofs, reserve funds make sure your HOA can handle major expenses without scrambling for money or surprising homeowners with another special assessment.
Discover the importance of reserve funds and why your HOA needs one.
What are Reserve Funds?
First, let’s start with a definition.
A reserve fund is a designated savings account set aside for the repair, replacement, and maintenance of major HOA assets. Unlike your operating budget, which covers recurring expenses, the reserve will help fund major projects and repairs.
Examples of projects that will use the reserve fund include the following.
- Roof replacements for community buildings.
- Resurfacing of roads or parking lots.
- Major pool repairs or replacements.
- Elevator upgrades.
- Clubhouse or amenity renovations.
Why are Reserve Funds Important
In short, reserve funds are essential for protecting your HOA’s long-term financial health by ensuring money is available for major projects and upgrades.
Here are a few more reasons why reserve funds are so important.
- They protect property values: HOA communities that are well-maintained will attract the most homebuyers and retain higher property values.
- They prevent special assessments: A fully funded reserve reduces the need for sudden, one-time special assessments, which homeowners often despise.
- They ensure safety and functionality: Timely repairs keep your community’s amenities and common spaces safe and functional, keeping them enjoyable for residents.
- They build homeowner trust: When your Board demonstrates financial preparedness, that builds trust with homeowners and shows responsible governance.
- They meet legal requirements: Many states or localities require adequately funded reserves.
How to Build Reserve Funds in Your HOA
Ready to start building your HOA’s reserve fund?
Follow these steps.
- Conduct a reserve study.
A reserve study is the first step for the Board looking to establish a reserve. It evaluates the condition and lifespan of your community’s major assets, estimating the cost and timing of future repairs. - Establish a funding strategy.
Your reserve study will help the Board establish a funding goal. With that information, you can determine how much needs to be allocated to the reserve fund annually. - Plan for inflation.
Don’t forget to account for inflation as you plan your reserve fund. The amount you add to the fund each year should increase accordingly. - Partner with a professional community association management company.
Working with a trusted community association management company, such as RedBrick Community Management, will ensure that your Board receives the financial support it needs to create your HOA reserve fund. Let us help you stay on track and protect your community’s assets and financial health.
Contact RedBrick Community Management today to learn more.
Are You Ready to Experience the RedBrick Difference?
We understand the unique challenges your community association faces and are committed to making community management simpler, more transparent, and highly effective. As a local, independently owned company, RedBrick Community Management provides personalized service, deep community knowledge, and quick decision-making that national brands simply can’t match.
From our use of Vantaca, the industry’s most comprehensive community management software, to regular on-site community walk-throughs, expert financial guidance, and efficient compliance management, we deliver unparalleled service tailored specifically for our local community.
Partner with RedBrick Community Management today and begin building a stronger, more successful community association!
