Why Your HOA Needs Reserve Funds
Whether your association plans for the expense or not, equipment, and other significant components, such as roofs, must be replaced from time to time. This statement is especially true if your HOA offers various amenities, such as pools, playgrounds, and workout facilities. For this reason, your HOA should have reserves to plan for the unexpected.
At Condominium Associate's, we recommend to plan and set the funds aside now. Remember, reserve funds aren't an extra expense—they just spread out costs more evenly over time. For this reason, alone, it makes sense to have a reserve fund. However, there are several other reasons why we recommend putting money aside.
Below are more important reasons why we put association funds into reserves every month.
Reserve funds meet legal, fiduciary, and professional requirements.
A required replacement fund may be necessary by any secondary mortgage market in which the association participates (e.g., Fannie Mae, Freddie Mac, FHA, VA). State statutes, regulations, or court decisions. The community's governing documents.
Reserve funds provide for major repairs and replacements that will be necessary at some point in time.
Although replacing a roof may only happen every 25 years, any current owner who lives under or around the roof should share its replacement costs.
Reserve funds minimize the need for special assessments or borrowing.
For most association members, this is the most crucial reason because you won't have to pay interest by taking out a loan. Keeping a reserve fund allows your HOA to maintain 0% APR throughout the project's lifespan.
Reserve funds enhance resale values.
Lenders and real estate agents are aware of the ramifications for new buyers if the reserves are inadequate. Many states require associations to disclose the amounts in their reserve funds to prospective purchasers.
The American Institute of Certified Public Accountants requires the community association to disclose its reserve funds in its financial statements.
Transparency is vital for the health and well-being of any HOA. Not only does it help you maintain honesty and integrity with your community members, but it comes in handy during budget season.
The information for this blog was primarily found at HOAResources.com.
Contact Us if you Have Questions
At Condominium Associates, we believe in the power of communication to relay information to our Board Members in a friendly and professional manner. If you have questions regarding your reserve funds, please do not hesitate to contact us.
Next week, we will take a closer in-depth look at why your HOA needs reserve funds and the consequences that may occur if your HOA doesn't plan for the future. Stay tuned!
