There are very few things people like less than an increase in fees or costs, and an increase in homeowners dues is no different. Many homeowners do not see why they need to contribute anything more to their homeowners association than what is needed to cover basic operations. They forget to take into account the necessity of a reserve study and keeping a stable reserve fund.
A reserve study is an evaluation of a homeowners association, usually by a professional analyst, to determine the projected costs of major maintenance projects over an extended period of time. They allow a board of directors to identify what projects will need to be completed in the near and far futures and accurately plan for the amount of money necessary to undertake them.
The types of maintenance projects an HOA will need to address will vary depending on the size and type of community, as well as each community’s individual amenities. A small community of single family homes with public streets and without a pool or other major amenities will most likely only need a small reserve fund to cover projects like the replacement of an entrance sign and major landscaping of common areas. Larger communities of single family homes with major amenities like pools, clubhouses, and playgrounds will need to plan for water pump replacement and pool resurfacing, roof repairs and renovation, and play equipment repairs. Townhome and condominium associations will always require the largest reserve funds as they inevitably have the most maintenance concerns. Buildings will always need to be pressure washed and painted, roofs will need to be replaced and parking areas resurfaced, and plumbing updated. All of these projects can be incredibly expensive, and a well-funded reserve account can ensure the association has the cash on hand to pay for them.
As with the types of projects, the amount needed to be put into reserve will also differ amongst various types of communities and their needs, but a good reserve study can assist the board in making a decision on how much to put aside and when. Most studies even take into account inflation and necessary dues increases to help create a solid financial plan and make sure the needed capital expenditures are covered. A reserve account is also important to fund emergency repairs a study or annual budget may not take into account and an insurance policy may not cover.
Always keep in mind that a reserve fund is not for “future improvements” current homeowners may or may not benefit from now, but rather a way to combat the cost of ongoing deterioration. Everything has a lifespan, whether it is twenty years for a roof, or seven years for a pool filtration system. These things will need to be replaced eventually, period. The lenders of prospective buyers will also take an HOAs reserve fund into account when deciding whether or not to approve a loan on a home, benefiting current owners when they sell. Being a member of a homeowners association means keeping a community in the best possible condition now and in the future.