An HOA Reserve Fund is one of the most important things a Board can plan for its association, however, many Board members misunderstand what it is, why it’s needed, or how to get it implemented. Knowing the basics about an HOA reserve fund and the reasons it’s crucial you have one will help set your community up for success.
Ignorance is not bliss.
Just because you don’t have a good understanding about HOA reserve funds, doesn’t mean you have an excuse for not having one. A reserve fund should do just what is says: set aside (reserve) money (funds) for the future. It’s like a homeowners association savings account. Every association is unique, but they all require a reserve fund to prepare for any surprise expenses along the way. It‘s important to note that an HOA reserve fund is part of the expenses in a homeowners association, not an extra expense. It’s a completely separate account than your HOA operating account, and not something there to rely on when things get tough.
If you fail to plan, you plan to fail.
Board members have a responsibility to association members to make sure the reserve fund is being adequately funded. It’s inevitable that major repairs will be needed in your association at some point. Having a well-established HOA reserve fund will help with the costs of these major repairs or other long term projects such as:
- Replacing roofs
- Refurbishing the pool
- Resurfacing the parking lot or sidewalks
- Common area landscaping projects and gardens
- Updates or repairs to the Clubhouse
If these repairs and replacements are ignored they can take the HOA into a downward spiral resulting in implementing a special assessment to members, borrowing, decreased property values, and low morale among the property owners in the association.
Money doesn’t grow on trees.
The best thing a Board can do for its members is build trust, and this is hard to do if you’re enforcing special assessments when times are tough and can’t make property repairs because you have a weak HOA reserve fund. Members want to feel like the investment they’ve made in their home is protected, and you’ll give them peace of mind by having a financial safety net in place. The best way to accomplish this is to:
- Establish a reserve fund if you don’t have one
- Conduct a reserve study to ensure proper funding. If you’re concerned about the costs of hiring a professional company, do the research yourself online to help guide the Board through the process.
- Implement the reserve rate determined by the study. Inform homeowners of why the reserve rate is being established, and expect some backlash at first. Be prepared to back up the reasons for the rate.
- Open a separate banking account for the funds being collected by the reserve rate. Set up auto-transfer from the operating account so the funds are deposited each month.
- Make repairs at the right time by following a repair schedule. This will help you avoid having to make large repairs or replacements all at once, as well as help maintain property value.
As a Board member, the homeowners in your association are trusting and relying on you to make financially sound decisions. You can’t afford to not have an HOA reserve fund in place.
Have you taken the steps to establish a reserve fund in your association?