What is a Condo Homeowners Association HOA Reserve Study?
A Reserve Study is a tool that identifies the current status of the Reserve fund contributions in a reserve account and provides a funding plan for deferred ongoing deterioration, maintenance, repairs and replacement in order to prevent special assessments.
The Reserve Studies must anticipate major expenditures that can actually occur in the future.
To do a Reserve Study report the following is needed
- Identification of Component list: must be Association common area with a cost usually higher than 1% of the annual budget of the Association
- Estimation of Useful Life
- Estimation of Remaining Life
- Estimation of Inflation
- Estimation of Interest
- Site Inspection
We are Professional Engineers performing Reserve Study Services, onsite inspections and preparing contributions for funding plan reports .
Reserve Studies Dade County, Homestead, Doral, Coral Gables, Pembroke Pines, Miramar, Fort Lauderdale, Hollywood, Weston.
The Study assists Condominium and Homeowner Association Board Members and their Property Management Company to understand what they own, how much money they have, the timing of potential replacements, future costs, and, ultimately, how to pay for the replacements when they are due.
The Studies are often prepared by an outside independent consultant for the benefit of the Board of Directors in a condominium association or homeowners' association.
HOA Reserve Studies are not limited only to condominiums or association and can be created for other properties such as schools, golf clubs, parks, etc.
In Reserve Studies, making a HOA Reserve Funding Contribution less than the rate at which the association common elements assets are deteriorating means the current owners are paying less than their fair share, and forcing future owners to pay more than their fair share.
The Study must establish the proper funding reserve contributions for the Association and in many cases avoid special assessments.
Reserve Fund formulas used and authorized by Florida Statutes (F.S. 720) must be based on a separate analysis of each of the required assets or a pooled analysis of two or more of the required assets.
If the Association wants to maintain separate Association reserves accounts for each of the required assets, the amount of the contribution to each account is the sum of the following two calculations:
- The total amount necessary, if any, to bring a negative component balance to zero.
- The total estimated deferred expense for maintenance or estimated replacement cost of the reserve component less the estimated balance of the component as of the beginning of the period the budget will be in effect. The remainder, if greater than zero, shall be divided by the estimated remaining useful life of the component.
The Study formula may be adjusted each year for changes in estimates and deferred maintenance performed during the year and may include factors such as inflation and earnings on invested reserve funds.
If the association wants to maintain a pooled account of two or more of the required Reserves assets, the amount of the contribution to the pooled account as disclosed on the proposed budget may not be less than that required to ensure that the balance on hand at the beginning of the period the budget will go into effect plus the projected annual cash inflows over the remaining estimated useful life of all of the assets that make up the reserve funds pool are equal to or greater than the projected annual cash outflows over the remaining estimated useful lives of all the assets that make up the reserve pool, based on the current reserve contributions analysis.
In the Study, the projected annual cash inflows may include estimated earnings from investment of principal and accounts receivable minus the allowance for doubtful accounts.
The funding formula may not include any type of balloon payments.
Community Associations Board Members or Property Management Company, if you want to properly calculate your Adequate Reserves Funds in your Reserve Study, please contact us and request a proposal to discuss your Association Reserves.
Please schedule your onsite inspection today.