A reserve study is a detailed analysis of your community's major components and the funding needed to repair or replace them over time.

Two main parts:

• Physical analysis: Inventory of major components, their current condition, remaining useful life, and replacement cost
• Financial analysis: Current reserve balance, recommended annual funding, and projection of how reserves will change over time

Common components included:

• Roofing and siding
• Paving, asphalt, and concrete
• Pool, spa, and water features
• Clubhouse and common building systems
• Fencing, gates, and retaining walls
• Playground and recreation equipment
• HVAC and mechanical systems
• Signage and lighting

The study projects expenses over a 20-30 year period, showing when major costs will hit and how your current funding compares to what you'll need.

Without a reserve study, you're guessing. And guessing tends to mean underfunding, which leads to special assessments and deferred maintenance.

Benefits of a proper reserve study:

• Avoid special assessments: Gradual funding means money is available when needed
• Protect property values: Well-maintained communities with funded reserves command higher prices
• Fair assessment setting: Current owners pay their fair share rather than deferring costs to future owners
• Board protection: Following professional recommendations demonstrates due diligence
• Lender confidence: FHA and conventional loans often require adequate reserves

What happens without adequate reserves:

• Special assessments when major expenses arise (often $1,000-$10,000+ per unit)
• Deferred maintenance that leads to bigger, more expensive problems
• Community conflict over how to fund unexpected costs
• Difficulty selling units when buyers learn reserves are inadequate
• Potential board liability for failure to plan

A Franklin community learned this the hard way when their 25-year-old roof failed without warning. With no reserves, they faced a $400,000 special assessment, about $8,000 per unit. Several owners couldn't pay, leading to collection issues that took years to resolve.

Reserve studies should be conducted by qualified professionals who understand community associations and local conditions.

Types of reserve studies:

• Full study with site visit: Most comprehensive, with physical inspection of all components
• Update with site visit: Updates a previous study with current conditions
• Update without site visit: Updates financial projections only, assuming conditions haven't changed

Finding a reserve study provider:

• Look for credentials: Reserve Specialist (RS) or Professional Reserve Analyst (PRA)
• Ask about their experience with communities similar to yours
• Request sample reports to evaluate thoroughness and clarity
• Check references from other associations

Cost and frequency:

• Full studies typically cost $2,000-$6,000 depending on community size and complexity
• Updates are less expensive, often $1,000-$2,000
• Conduct a full study every 5 years; updates in between as needed
• Update after major repairs or significant changes to components

Once you have a reserve study, you need to understand what it's telling you.

Key metrics to understand:

• Percent funded: Current reserves divided by fully funded balance. Shows how you compare to the ideal.
• Fully funded balance: The amount you would have if you'd been setting aside money proportionally since each component was new
• Recommended annual contribution: How much you should add to reserves each year
• 30-year projection: Cash flow showing when major expenses will occur and how reserves will fluctuate

Percent funded benchmarks:

• 70%+ (Strong): Low risk of special assessments, attractive to buyers and lenders
• 30-70% (Fair): Some risk, should be working toward improvement
• 0-30% (Weak): High risk, special assessments likely, may affect property values and sales
• Below 0% (Critical): Already borrowing from operations, immediate action needed

Don't just look at percent funded. Review the cash flow projection to see if reserves will dip dangerously low in specific years, even if the average looks okay.

Your reserve study will recommend a funding level, but you have choices about how to get there.

Funding methods:

• Full funding: Contribute enough to reach and maintain 100% funded status. Highest assessments but lowest risk.
• Threshold funding: Keep reserves above a minimum level that avoids special assessments. Lower assessments but requires monitoring.
• Baseline funding: Maintain positive reserve balance without a specific target. Lowest assessments but highest risk.
• Statutory/lending: Meet minimum requirements for FHA or lender approval. May not be sufficient for actual needs.

Catching up on underfunded reserves:

• Calculate the gap between current reserves and recommended level
• Spread catch-up contributions over 5-15 years
• Combine with regular annual contributions
• Communicate the plan clearly to owners

What not to do:

• Ignore study recommendations because assessments would increase
• "Borrow" from reserves for operating expenses
• Assume you can pass special assessments when needed
• Delay major repairs hoping costs will drop

Reserve funding often means assessment increases. Clear communication helps owners understand why.

What owners need to understand:

• The choice isn't whether to pay, but when and how
• Gradual funding through assessments vs. sudden special assessments
• Impact of underfunding on property values and sales
• Board's fiduciary duty to plan responsibly

How to present reserve information:

• Share key findings at annual meetings
• Make the full study available for review
• Use charts showing the 30-year projection
• Compare costs of adequate funding vs. special assessment scenarios
• Emphasize that this protects everyone's investment

When done well, reserve funding becomes a selling point. "This community has a professional reserve study and is fully funded" sounds much better to buyers than "We've never done a reserve study."