Our Essential Community Management Reserve Study Checklist Every HOA Should Have
As an HOA board member, you carry the responsibility of managing the community funds and making sure that common areas and amenities are well-maintained. However, with so many community management tasks on your plate, it can be easy to overlook the important task of conducting a reserve study.
A reserve study is a crucial part of financial planning for any HOA, as it helps determine the long-term financial needs of the community. However, a reserve study is only as good as the information it contains and the board’s ability to use it effectively. If you want to ensure that your reserve study is effective and that your community remains well-maintained and well-funded, here’s our essential checklist that every HOA should have.
1. Undergo a Physical Inspection
The first step in conducting a reserve study for your HOA is to undergo a physical inspection of all the common areas and facilities. This includes roofing, plumbing, electrical wiring, irrigation, asphalt, entry/exit areas, and any amenities.
During this inspection, your reserve analyst and HOA management firm representative will examine the common areas, assessing what may need to be maintained or replaced in the future. By identifying any existing issues or potential problems that may require attention in the future, you can gain a realistic idea of the condition of the community assets and help create an accurate reserve study.
2. Perform a Financial Analysis
After the physical inspection, your community management team will need to perform a thorough financial analysis. This involves reviewing your HOA’s financial statements, budget, and any other financial documents. A comprehensive analysis will help you understand the current financial status of your community and identify any financial gaps that need to be addressed.
This review is essential for helping you plan for future expenses and ensuring that sufficient funds are available for these projects. Make sure that all information is as accurate as possible, and ask your HOA financial management company to assemble all the necessary documents to ensure that nothing is missing.
3. Remember Commonly Overlooked Expenses
Whenever estimating future financial needs, it’s always best to include a buffer for unexpected costs. Even if your reserve study is incredibly thorough, it may still fail to cover unexpected expenses, such as those caused by natural disasters or emergencies.
Some of the most overlooked expenses include ancillary repair costs, amenity-related expenses, roofing issues, emergency damage, or increased material costs. Accidents happen, so allow some room for emergency repairs or expenses that are more costly than anticipated. You should also account for inflation, as today’s expected costs will almost certainly cost more five years down the line.
4. Know Your HOA’s Funding Plan
Once you know what your HOA expects to spend, your reserve study should include a plan for how it will earn that money. Your funding plan should clearly outline how your HOA will finance projected expenses identified in the reserve study and how funds will be allocated.
How will annual dues change over time? Will you hold fundraisers or rent out amenities? Ask your community management firm to share your current income breakdown and make a realistic long-term plan for covering the expected costs outlined in your reserve study. Planning strategically and comprehensively will help you avoid last-minute significant fee hikes or emergency special assessments that lower resident satisfaction.
5. Review Your Balance Sheet
Once your reserve study has been completed, review your HOA’s balance sheet to determine how you should begin implementing your plan next year. Typically, this is done by adding the remaining months of the community’s reserve allocation and subtracting any known expenses. This should give you an idea of your true reserve balance, so you can begin implementing the results of your reserve study and working toward the long-term financial health of your HOA.
With over 30 years in the industry and over 1,500 successfully managed communities, The Management Trust has the expertise to guide you in all aspects of community association management, including HOA financial management services. To learn more about our comprehensive community management services, including assisting with HOA reserve studies, contact us today. We look forward to working with you!
