How Reserve Studies Prepare Community Associations for Successful Futures?

The capital reserve or reserve fund of a homeowner’s association or community association is one of the most important safeguards these organizations have. Not only do these funds help to cover costs associated with maintenance, but they also help to protect the property or community that they are created to serve from the fallout of natural and manmade disaster. Somewhat like insurance policies, they help to protect the future of the properties, the tenants living in them, and the members of the association alike.

 

If your group isn’t already planning a capital reserve study for your community, here’s why you should be – and how it can benefit you in the long-term:

 

What is a Capital Reserve Study?

 

The capital reserve or reserve fund that your organization keeps is a specified amount of money that is designated for various maintenance and improvement expenses. Simply put, it is money that you put back through the collection of membership fees to help you prepare for repairs, disaster recovery, and more. But how much money do you need, and how regularly should you be charging dues to maintain that amount?

 

These are the questions that a capital reserve study seeks to answer. The study is an examination of your group’s current financial situation, as well as a projection based on hard evidence of what the monetary needs of your group and the community it serves are likely to be in the future. This is based on a variety of factors, including:

 

  • The age of the structures within the community.
  • The landscape and weather patterns of the area, along with associated risks such as flooding, fire, tornadoes, etc.
  • Potential manmade issues, such as heavy pollution in the area, proximity to areas with high crime rates, etc.
  • Past repair and maintenance needs and associated costs.
  • Past and current fundraising efforts and their documented efficiency in meeting the organization’s needs.

 

These and other factors will help the group or individual conducting the study to understand how your capital reserve serves the community organization it was designed for and how that service can be improved to provide the maximum amount of protection.

 

How Does This Help Members and Tenants?

 

It is important to note that the money set aside in a reserve fund is not the same thing as the money used for regular operating costs. These costs are likely also addressed by membership dues or tacked onto rental costs, which means that some tenants or association members may question why additional funds are even necessary. However, operation costs cover only basic maintenance and upkeep, leaving members and tenants on the hook for major repairs or disaster recovery without a second fund in place.

 

This is why these funds and the studies that help to establish and maintain them are so important to these organizations. They create a financial situation that allows members to feel safe in their homes and communities knowing that repairs and recovery efforts will be handled. It also keeps overall maintenance costs down in the long run and sets these communities up for better, brighter, and more financially stable futures. That’s something every rental community can enjoy!

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