Why HOAs and Property Owners Can Use Their Reserve Study to Save Money

8/3/2019 Why HOAs and Property Owners Can Use Their Reserve Study to Save Money

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P r i n t e d w i t h

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How HOAs and Property Owners Can UseTheir Reserve Study To Save Money

Currently mandated in approximately 20 States,

Reserve Studies are performed to ensure thatProperty Managers, Homeowner Associations

or other vested parties have the nancial resources

available to maintain common elements not coveredby owner’s responsibilities. The increase in foreclo-sures has impacted this area because more and moremortgage lenders, underwriters and investors wantto make sure their investment is secure nanciallyand in good physical shape.

What is a Reserve Study?

“A reserve study is a budgeting guide whichprovides a detailed inventory of all the com-

mon element components with (usually) 2-30year useful lives that will need to be repairedor replaced. The reserve study determines theremaining life of each item, the cost to repair orreplace it and calculates the annual contribu-tion required to adequately fund each item. If an adequate funding plan is followed, specialassessments will be unnecessary.”

Ernest Lahti writing for APRA Newsletter Sept-Oct 2009

In essence, a Reserve Study is the gathering of pro-perty asset information and then planning to makesure there is money available for major repairs andthe planned replacement of identied assets (likeroofs).

Why do a Reserve Study?

Physical assets deteriorate over time. It is not a ques-tion of if butwhen. Assets include but are not limited to:

• Roofs• Pool and recreational equipment• Roads• Streetlights• Retention ponds• Parks• Siding• Maintenance equipment/tools• Parts

The repair or replacement of assets is usuallypaid for with an assessment or the allocation of funds to be put aside on an annual basis until nee-ded. One of the objectives of the Reserve Study isbe able to correctly plan the date on which an assetwill need replacing.

“The Governing Documents of most associa-tions require the Board to collect an appro-priate amount of money on a regular basis to

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How HOAs and Property Owners Can Use Their Reserve Study To Save Money

offset the ongoing deterioration of the commonareas. Most of the “major” components whichthe association is responsible to maintain willrequire replacement in a predictable manner…It is irresponsible to create a nancial emer-gency (special assessment) which could havebeen avoided by advance planning.”

Robert M. Nordlund, P.E. Association

Reserves,Inc.

Without a Reserve Study property managers andHOAs may not be able to pay for major repairs or thereplacement of common assets without the dreadedspecial assessment. In addition, not all ownersmay have the capability to pay their share at thetime the special assessment is levied.

What are the contents of a reservestudy?

Reserve studies have three major components; 1)a complete inventory of all assets, 2) a capital plan-ning report that recommends the reserve scheduleof the monetary collection and expenditures overa period of time and 3) a schedule for performingthe repairs and maintenance.

“A reserve study should include the following:

• A summary of the association, including thenumber of units, physical description, andthe nancial condition of the reserve fund.

• A projection of the reserve starting balance,recommended reserve contributions, pro-

jected reserve expenses, and the projectedending reserve fund balance for a minimumof 20 years.

• A tabular listing of the component inven-tory, component quantity or identifyingdescriptions, useful life, remaining usefullife, and current replacement cost.

• A description of the methods and objectives

utilized in computing the fund status and inthe development of the funding plan.

• Source(s) utilized to obtain component re-pair or replacement cost estimates.

• A description of the level of service bywhich the reserve study was prepared andthe scal year for which the reserve studywas prepared.”

The Foundation for Community Association Research

Although there are various types of reserve studies(full, update/on-site, update/off-site) they should beconducted by experienced professionals. ReserveStudies done by people without proper credentialsmay be considered invalid. A few recognized rmsare:

• Association Reserves, Inc. – Association

Reserves, Inc. is a professional engineeringconsulting company that has as our focusthe preparation of Reserve Studies for Com-munity Associations. Established in 1986,we currently have clients in 37 states andperform close to 1000 Reserve Studies eachyear.

• Regenesis -Regenesis.net is the home of The HOA ExpertTM Richard Thompson whooffers personalized solutions to the mostcomplex HOA issues.

• The Helsing Group, Inc. – The HelsingGroup, Inc. provides a full range of consul-ting services to community associations.Our service is based on many years of coo-peration with builders and homeowners.Serving the entire United States, our Re-serve Study provides a complete evaluationof your association’s reserve funding requi-rements.

• Complex Solutions, Ltd. - Formed in 2001with the idea that what the Reserve Studyindustry needed was a company that com-

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bined professionalism and accuracy withthe highest standard of customer service.Complex Solutions is dedicated to providinga simple and understandable solution toCommunity Association’s Reserve Studyneeds.

The Association of Professional Reserve Analysts isthe national trade organization for members which

hold the Professional Reserve Analyst (PRA) creden-tial. The PRA requires years of full time experienceperforming reserve studies and numerous client re-ferences to prove it. A list of PRA members and theircontact information is available on their website.

Homeowner Association, Business Owner

and Property Manager Business Savvy

One of the objectives in any type of real estate in-vestment/operation is to make money from the

anticipated appreciation of the property. Hereinlies an opportunity. Should you invest your moneyin short term cosmetics or in longer term solutionsto maintain the infrastructure?

The answer is highly dependent on the length of time the investment is expected to be carried. Realis-tically, a short-term investor (<3 yrs) will probablyopt for the cosmetic improvements. Longer terminvestors may not be sure yet. Signicant factorsmay include the state of the economy and the abilityto sell the property. The longer the property is tobe carried the greater the impact of a asset main-tenance solution. Knowing how to take advantageof your Reserve Study is crucial.

How& using your Reserve Study can help

save you money

Once a reserve schedule has been determined,property managers, homeowner associations andinvestors investors need to make smart businessdecisions. The biggest mistake property managers,

and homeowner associations make is letting the datagathered during the Reserve Study sit on a bookshelf collecting dust. The smart decision is learning howyou get the volumes of asset data that was collectedto increase your Return On Assets (ROA).

One method to avoid this mistake and maximizeyour ROA is to set up a preventive maintenance pro-gram. Your Reserve Study contains most of the asset

information necessary to load a program that tracksassets, schedules work orders, schedules inspectionsand eciently maintains your property. Failure tomaintain your assets (roofs, siding, common areasetc.) will almost guarantee that the assets do notrealize their full useful life. Maintenance based onneed only results in earlier replacement expenses.Early replacement may cause a special assessmentto take place.

A good solution preventive maintenance

solution can reduce annual operatingcosts by:

• Organizing work ow and eliminating ar-chaic paper based systems

• Decreasing labor costs through a reductionof reactive maintenance work

• Discovering repair issues before they be-come major replacement costs.

• Tracking equipment location and status• Using handheld devices for date/time

stamps and increased accuracy

Other benefts include

• Lower liability from claims due to allegednegligence

• Lower and more accurate maintenancebudgets

• Capital planning tools• Better asset details for the next Reserve

Study

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What does a Reserve Study have to do

with an EAM or CMMS?

Preventive maintenance is a signicant componentof most Enterprise Asset Management (EAM) sys-tems or Computerized Maintenance ManagementSoftware (CMMS). An EAM/CMMS solution is not justfor large facilities. New advances in technology andscalability make an EAM/CMMS solution a natural

t with the data a Reserve Study generates. Theresult is a great tool to help maximize your ROA.

How do you utilize the data from your ReserveStudy? We would like to hear your story.

capital analysis, preventive maintenance, Reserve Study

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Why HOAs and Property Owners Can Use Their Reserve Study to Save Money

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