A Reserve Study can be broken down into (3) categories: Reserve component listing, Reserve Fund Strength and the Reserve Funding Plan (usually 30-year time span).
When reading a Reserve Study, you should be on the lookout for these (3) items.
1. Reserve Asset Inventory Listing: this is a list showing each common area reserve component, their useful life, remaining useful life and the estimated replacement cost.
2. The Association’s Reserve Fund Strength: (usually measured as a percentage) should be included in every Reserve Study. Percent funded is a comparison of your current Reserve Fund balance and the ideal or Fully Funded Reserve Balance. Most Reserve Study providers use a simple formula to calculate the Fully Funded Balance (Current Replacement Cost X Effective age / Useful Life). A Reserve Fund is considered weak when the percent funded level is between 0-30%, however, a Reserve Fund is considered strong when the percent funded level is between 70-100%, anything between the 30-70% range is considered fair. The ultimate goal of any association should be to maintain common area amenities, keep property values steady and avoid the need for special assessments. A strong Reserve Fund (70-100%) ensures an association will meet its financial obligations (present and future).
3. Reserve Funding Plan: The Reserve Funding Plan is a “Financial Road Map” for an association to follow. A Reserve Funding Plan details future Reserve expenses along with recommended contributions to “offset” those expenses. If followed, a Reserve Funding Plan will keep a community looking nice and protect homeowners from unexpected expenses and the need to special assess.
Capital Reserve Analysts is Arizona’s leading provider of quality Reserve Studies for HOAs. If you have any questions about your Reserve Study feel free to contact us. You can also download a copy of our Sample Reserve Study here.
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