How Much Should a HOA Have in its Reserve Fund?

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In determining how much assessments should be each year, the HOA Board of Directors of any homeowners association like Summerfield, King City and the Highlands must estimate how much the association is going to spend for operating expenses and how much it must save for future repairs and replacement of common area assets (reserves). However, in order to know how much to set aside for those repairs/replacements the Board needs to know approximately when those repairs/replacements are going to be needed. A reserve study helps to provide that information to the Board. 

State statutes require that community associations have an independent reserve study prepared by an independent consultant or contractor with no connection or interest in the association. The results of the reserve study play an important role in determining how much of the annual assessment will be used to fund the reserve funds. A reserve study identifies the major components which the association is obligated to repair, replace, restore, or maintain. In addition, a reserve study provides estimates for each component’s remaining life, cost of maintenance or replacement and the annual dollar contribution required to perform the work. Each Board of Directors consider the findings of the reserve study when they set each community’s operating budget for the upcoming fiscal year, thus determining the annual assessment.  

The reserve study is a valuable tool that an HOA Board uses in order to ensure that the association has the funds available to properly maintain and replace the common area assets when needed.

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