Homeowner’s association (HOA) Boards are often tasked with planning for a community’s future success even when your Board partners with a community association management company, the Board will retain this responsibility.
Future community planning often involves budgeting for and preparation of major repairs and replacement projects. Your HOA’s reserves typically fund these.
However, if your Board is new to HOA reserves, you may struggle with the main terms: reserve study and reserve fund. The rest of this guide will define these terms and explain the major differences between them.
What is an HOA Reserve Study
A reserve study usually comes before the reserve fund. It is an inspection by a professional that identifies your association’s major assets and estimates their remaining useful life. The reserve study will also provide an estimate of replacement costs and recommend an amount of money to be held in reserve for these large projects.
The common components inspected during a reserve study include:
- Roofs
- Private Roads and Parking Lots
- Sidewalks
- Clubhouses
- Swimming Pools
- Elevators
- Exterior Painting
- Fencing
- Lighting Systems
- HVAC Equipment Serving Common Areas
Many states now have regulations regarding how often an HOA must conduct a reserve study and how that information should be used.
What is an HOA Reserve Fund?
Your HOA reserve study will recommend an amount that your Board should hold in reserve for future capital projects. This fund is your HOA reserve. Your Board will typically build up the reserve fund over time.
Reserve funds are separate from your HOA’s operating budget. They are not used to fund scheduled maintenance or short-term projects. Instead, they are held in reserve for long-term improvement projects such as:
- Roof Replacement
- Asphalt Resurfacing
- Pool Renovations
- Clubhouse Improvements
- Exterior Painting
- Fence Replacement
- Exterior Painting
- Fence Replacement
- Mechanical System Upgrades
What’s the Difference?
Still have questions about the difference between an HOA reserve fund and a reserve study? Here is a handy table to help you keep them straight.
| Reserve Study: Long-term planning document | Reserve Fund: Savings account for future projects |
| Estimates future repair and replacement costs | Pays for major capital repairs and replacements |
| Evaluates the condition and lifespan of common elements | Holds money collected through assessments |
| Provides funding recommendations | Provides the financial resources needed to complete projects |
| Updated periodically | Continuously funded and monitored. |
Why Both Are Important
Reserve studies and reserve funds are quite different from one another. However, your HOA needs both to function well. A reserve study without a sufficient reserve will not benefit your community. Plus, your Board will likely have to issue special assessments for capital improvement projects, which can aggravate homeowners and reduce trust between them and the Board.
On the other hand, the best way to know how much to put in your reserve fund is to conduct a professional reserve study. Without it, there is no real way of knowing that your HOA is saving enough money for its long-term projects.
Plan Today for Tomorrow’s Community
Don’t overlook the importance of both reserve studies and reserve funds. Understanding the differences between these two financial planning tools is essential for the effective governance of your community.
Professional community association management, such as Community Property Management (CPM), can help your Board plan confidently for the future. Contact us today to learn more.