Equipment and major components within a homeowners association (like the roofs) must be replaced from time to time, regardless of whether we plan for the expense. By having a plan, the association can be much more prepared for these large expenses when they come. The plan provided by your reserve fund specialist will help you in this process. It is much more preferable that homeowners associations have a plan to set the funds aside now, on a year-by-year basis. By doing this, the association can spread out the collection of assessments for these expenses more evenly over the years. Remember, reserve funds are not an extra expense. They are part of the ongoing expenses of the homeowners association which just occur at various points in time.
Reserve funds of a homeowners association are often misunderstood by homeowners association members and sometimes Board members as well. Some see it as a slush fund that is to be used on a "rainy day"' when the homeowners association gets low on cash in the operating account. Others, although they may understand the need to have some measure of reserve cash, do not make the connection that reserve funds are being reserved for the particular components within the community that the homeowners association is responsible for, such as roads, roofing, siding, fencing, painting, and equipment replacement.