A reserve study is an essential tool that allows homeowners associations to protect their finances. It is not something that just anyone can do, though. It requires the help of the best HOA reserve studies companies.
Reserve studies are imperative for any homeowners association because they evaluate the state of the HOA’s assets and reserves. This will let you know how much money you will need to cover for future repairs and replacements once those assets reach the end of their life.
Without reserve studies, your association has no way of knowing whether or not your reserves are fully or underfunded. A fully funded reserve means you can cover 100% of future repairs and replacements, whereas an underfunded reserve means the opposite. Far too many homeowners associations have underfunded reserves. And because reaching a fully funded status is quite difficult, it is generally ideal to achieve at least 80% funding.
With underfunded reserves, the HOA board will be forced to levy special assessments or dramatically raise regular dues once unanticipated costs arise. Funding your reserves a little at a time through the years is more practical than slapping owners with a huge bill that they must pay in full at once. It is also significantly more convenient to owners, who will undoubtedly negatively react to a one-time payment of thousands of dollars.
Apart from ensuring the financial health of your association, conducting a reserve study is also mandated by some state laws. Even in states where it is not required, most HOA governing documents stipulate the need for reserve studies every x number of years. When boards fail to have them performed, it can be viewed as a breach of their fiduciary duty.
A lot of factors can influence the condition of your assets, which is why it is recommended to conduct a reserve study once every 3 to 5 years.
A reserve study company conducts reserve studies for organizations and properties such as homeowners associations, condos, golf communities, schools, and the like. Full reserve studies consist of two parts — a physical analysis (on-site inspection) and a financial analysis. On the other hand, a lot of companies also offer reserve study updates with or without on-site inspections.
The physical analysis stage involves the evaluation of the association’s physical assets. Actions include:
This will require the help of the board or property manager — someone who can provide adequate information about the background of the property and its components. The reserve study engineer will work with this person to identify any existing problems with the property. Then, the engineer will conduct a physical inspection.
The financial analysis stage of the reserve study involves the examination of the association’s finances. It considers the association’s income, expenses, and current reserve fund to create a funding plan that suits the HOA.
It essentially works out how your association can reach the optimal reserve fund level, i.e. how much your HOA needs to set aside each year to afford the cost of future repairs and replacements. The goal here is to ensure your association has sufficient funding once components reach the end of their remaining useful life.
Reserve studies require engineering and financial expertise, which is why HOA boards can’t accomplish them on their own. Here are the best reserve study services for homeowners associations:
Association Reserves boasts 34 years of experience in the reserve study industry. The company has conducted over 60,000 reserve studies and counting for all types of properties. This includes homeowners associations and condo associations. They have different kinds of reserve studies on offer. They can conduct a full reserve study, reserve study updates (with and without site visits), and consulting services.
Barrera & Co specializes in conducting reserve studies for community associations, condos, hotels, schools, and more. It has been certified and accredited by the Community Associations Institute (CAI) as well as the Association of Professional Reserve Analysts (APRA). They offer three services — a full reserve study with on-site inspection, a reserve study update with on-site inspection, and a reserve study financial update.
Certified by both CAI and APRA, Reserve Data Analyst works with property managers, accountants, facilities managers, attorneys, and community associations. Their reserve studies all include comprehensive inventory inspection, a breakdown of components, and a detailed cost analysis of components. They also provide you with a timeline of repairs/replacements, analyze the strength of your current reserves, and create long-term funding strategies tailored to your HOA.
Reserve Study Group prides itself on providing reserve study services to associations, no matter the size, place, or complexity. They offer three levels of service — a full reserve study (level 1), a reserve study update with site visit (level 2), and an update without a site visit (level 3). They also offer a loyalty plan that covers three years of service.
The Helsing Group caters to businesses and organizations (including HOAs) across the United States. The company boasts more than 50,000 completed studies under its belt throughout its years of service. In addition to reserve studies and updates, the company also provides expert witness and litigation consultations related to reserve studies and reserve funds.
Clearly, a reserve study is a helpful instrument to homeowners associations. It allows HOAs to budget smartly and prepare for future major costs. To conduct reserve studies, though, you need expert knowledge in multiple areas. As such, it is important to outsource the job to the best HOA reserve studies companies.