What is a Reserve Study?
Reserves are an association’s way of setting aside money for future repairs and replacements of community components or assets. A reserve analysis study is a long-term planning and budgeting guide that provides an assessment (payment) plan allowing the association to make smaller monthly assessments to their reserve account in order to have adequate funding available when each asset needs to be repaired or replaced. Special assessments, which are often substantial and usually unfairly apportioned, are rarely required when an asset needs replacement. In addition, there are expert estimates as to how long a component will last and how much it will cost. In addition, the reserve study analyst should complete the following in the preparation of a study:
A comprehensive analysis of your operating guidelines and other governing documents that determines the full extent of your maintenance and reserve funding responsibilities.
A detailed and complete inventory of all assets for which the association is responsible.
A complete collection of detailed data for each asset showing placed in service date, useful life, adjustments, replacement year, quantity, unit cost, percentage replacement, current cost, future cost, accumulated reserves, salvage value, required monthly assessment to reserves, accumulated interest, net monthly allocation, and remarks detailing factors such as design, manufacture, quality, usage, exposure to the elements and maintenance history.
A long-term budgeting guide providing the association with thirty-year projections listing total replacement costs in future; annual membership assessments, annual expenditures, projected and ideal ending reserves and yearly percentages of fully funded.
A reserve funding model (payment plan) that allows the association to become ideally funded with the lowest possible monthly assessment to reserves. Two reserve funding models, the modified straight-line and cash flow when used together, provide the most helpful information for determining the actual fiscal condition of most associations.