Lessons to Build On: Reserve Study: Financial Stability and Your Community

February 17, 2016    Margo Crummack CEO/Principal    Education



When some people think about reserve funds they sometimes think, “Why can’t we wait until something needs fixing, is broken, etc...” But reserve funds are an HOA’s version of a rainy-day account, even when the rain is not to blame. When a community has reserve funds, you don’t have to wait longer than necessary to fix a problem that could become exponentially more expensive the longer your HOA puts it off. The Reserve Study allows each HOA to analyze and create a funding plan to use those reserves. Here are some common strategies for their use.

What is a reserve study?

In simple terms, it is an Association’s long range savings plan for repair and replacement of components that have a life of greater than 12 months. 

Here are some other examples of typical reserve assets:  Entry gates and their operating systems, streets/roadways, wrought iron fencing, painting, pool re-plastering, decking, lighting, flooring, furnishings, sport court surfaces, play structures, exercise equipment, clubhouse structures, gazebo’s trellis’ pool furniture… The list goes on and on.

The reserve study provides a funding plan for all of these types of fixed assets.  The goal is to provide adequate funding allocations to repair and replace as needed. Following the reserve funding plan avoids deferred maintenance which leads down the path to declining property values. 

Ideal Goal for Funding Percentage:  75% or greater.

When do you obtain one?

  • After the first full year of operation; even during build-out… don’t wait.
  • Update when major infrastructure is completed.        
  • Civil Code 5550 requires a visual inspection of major components at least once every three years.
  • Update on an annual basis

What is Considered an Excellent Funding Percentage?  75% or greater.

Did you know the BRE Cost Manual for the State of California was last revised in April of 2007? 
To understand how the funding allocations stand up to current funding ratios, obtain a reserve study early on.  Also, update it when major facilities are completed and annexed.  

Creating a plan early on and monitoring is one way to ensure a healthy financial foundation for your newly completed communities and sets the tone for a healthy financial future!  

As leaders in our industry, and with decades of combined experience, we’ve set a new standard for BRE consulting and processing coordination with your SRP. There’s not a one-size-fits-all at Crummack Huseby Property Management, Inc., because we understand builders deserve an experience that’s as unique as the communities they create. Our unforgettable team and unparalleled personal approach to New Community Management and BRE Services sets us apart. Let us help your community stand out. When you’re ready for us, we’ll be here for you.  For more information, visit ch-pm.com or call 888-399-9430 Toll Free

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Building Industry Associaiton of Southern California
Member of Community Associations Institute
California Associations of Community Managers