What is a reserve study? A reserve study is an assessment of all of the community’s common elements, and includes an inspection and analysis of the remaining useful life of items the association is responsible for maintaining, such as roofs, concrete, mechanicals, fencing, and much more. Most reserve studies will cover 20-30 years’ worth of projects. After this information is assessed, a funding plan is created to estimate the cost for the replacement of these items at the end of their useful life, and what the community should be saving annually in order to afford the work when it is needed. The inspection by the independent engineer is important because an engineer can often point out potential problems that a homeowner or a general maintenance vendor does not have expertise to see; in addition, their opinions provide support for the board’s decisions.
A good reserve study can help you predict your community’s financial future and avoid potential funding problems. It is vital for boards to actively participate in the reserve study process; as with many tasks in life, the more you put into it, the more you will get out of it. Even if a community manager has worked with an association for several years, they still won’t have the same knowledge base as the board member who has lived onsite since the community was built. The insights from historical resources are particularly helpful if you are having your community’s first reserve study prepared. Once some of the community’s information has been memorialized in your Reserve study, you have a great resource that future boards and managers can easily access when they plan projects and budgets.
Just as with your annual budget, the reserve study is a guide, and not a hard and fast commitment to the projects. Oftentimes, a board will find the need to do some work sooner than a reserve study forecasts, and other work may be postponed. This means that a Reserve study should be updated every few years, particularly after a large project has been completed, to make sure reserve funding stays on track.
Source: What Successful Associations Do: Master the Reserve Study