Today, there are over 351,000 homeowners’ associations in the nation. If you’re part of one, you’re probably interested in maintaining the community to the best of your abilities.

One way to do so is to have reserve studies done at regular intervals.

What is a reserve study? And how can it benefit your homeowners’ association? Read on to find out.

What Is a Reserve Study?

A reserve study is an assessment that reveals the condition of your community. From there, you can determine the expenses needed for impairs and improvements. Then, you can see if there is enough long-term capital to handle those issues properly.

Think of reserve studies as a type of budget planning tool. There are two parts to a survey: physical and financial analyses. Read on to find out more about each.

Physical Analysis

In the physical analysis, the homeowners’ association (HOA) carefully assesses the condition of common areas that they’re required to maintain. For example, they might find that old boilers need to be replaced, or the walls need to be repaired.

Financial Analysis

Once all the physical analysis is done, then the committee can move onto the financial analysis. This consists of 3 parts.

First, it’s an evaluation of the annual income the HOA receives. Then, it’s a look at the expenses that’ll come from maintenance and repairs. Finally, the analysis examines the reserve balance to see if the financial health of the HOA is good.

Types of Reserve Studies

There are a few types of reserve studies you should understand.

Full Reserve Study

It is typically done for HOAs that have never had a reserve study done before. You can also get a full reserve study done if you have already gotten a reserve study but want a second opinion.

As the name suggests, it’ll be a full study, which means it’ll take a relatively lengthy amount of time for the study to be conducted on-site. Included in this study are a condition assessment and a component inventory. The inspector will also draw up a funding plan during this study.

Reserve Study With Site Visit (WSV)

This type of reserve study is less intense than with a full reserve study, which means you can expect it to cost less and be conducted quicker. You’d typically have one of these done after you’ve had a full reserve study done before.

The reserve study with the on-site review is usually done every few years or so. That way, any component changes can be documented, and any other changes can be updated and reviewed.

Reserve Study With No Site Visit (NSV)

In between your WSV studies, you can have NSV studies done. The least expensive type of reserve study since you don’t need an inspector to come on-site. Because of this, component changes are updated by the HOA, not an inspector.

Other types of documentation can also be updated and reviewed.

Preliminary Study

Preliminary studies are typically used for communities before they’re constructed. This is because the main focus is on architectural and engineering documents.

What Are the Benefits of Using a Reserve Study?

Because communities are ever-changing, we highly recommend conducting reserve studies every few years. In fact, some states require reserve studies to be done, so make sure you’re compliant with the law if that’s the case. For instance, California is one of these said states.

But besides it possibly being a legal requirement, what use is a reserve study to you? Below are the main benefits you can get from reserve studies.

Increase in Value of Property

When you invest in improvements for the community, this already raises the value of all property within. However, reserve studies can further increase the value of a property.

This is because you can show future buyers that you already have a good idea of your future expenses and that you’ve set aside the appropriate funds for them. This tells them that they’ll more than likely make a good profit on reselling their property in the future.

Increase in Income

The money you collect from homeowners in an HOA can generate income through interest. Without a good plan in place, that collected money might be spent quickly.

While that may seem like a good thing at first glance, there are two main problems with that. First of all, you won’t have as much money in reserves, meaning you won’t be as prepared for emergencies. And second of all, that fact means there’s less income generated from interest.

Having regular reserve studies performed means more money tucked away in reserves. This is a long-term investment that’ll not only give the HOA better padding for emergencies but also more revenue for the community.

No More Special Assessments

A reserve study will tell all homeowners what the expected costs will be for the foreseeable future. Because of this, HOA members will not be required to pay for special assessments. As a result, they won’t have added costs; instead, they’ll be fully predictable.

Get a Reserve Study Done Today

Now that you know what a reserve study is and the benefits you can reap from it, the next step is to schedule one. This can be especially important and urgent, especially if you live somewhere where state law makes reserve studies mandatory.

In any case, only good can come out of getting a reserve study done for your HOA. Not only will these get important matters taken care of promptly, but you’ll also get a better idea of your reserve balance to ensure adequate funds for future fixes.

Would you like to get started on improving your community? Then request a proposal from us today.

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