Whether an association has 300 units or 30, managing and planning for the maintenance and reserve funding for community components is never an easy task. Even small associations will face large-scale projects, and without the foresight to prepare for them, boards may find themselves in a sticky situation.
Property Background
In 2024, a 32-unit townhome association in Big Sky, Montana, approached Reserve Advisors to complete its first-ever reserve study. The community, over 20 years old, had approached a crucial turning point in its need to manage common assets effectively. They had recently completed a deck and balcony replacement project out of necessity, with the structures needing immediate replacement to remain structurally sound and safe for residents.
However, due to a lack of awareness of the project’s criticality, they were financially unprepared for the undertaking. It was too late for the association to do anything else, so they had to complete the $2M project via special assessments.
The Challenge
Given the magnitude of the deck and balcony replacement project, the board found itself caught off guard. With no prior reserve study and a lack of awareness of deteriorating component conditions, the board faced multiple fundamental challenges that are common in associations without structured capital planning:
- No reserve funds or understanding of reserve planning
- Lack of a formal maintenance schedule
- Unclear distinction between operating and reserve expenses
- Deferred maintenance on critical components
Because of these challenges, the board had been operating reactively to the community’s needs, addressing projects only when they became critical. Without proactive planning, the association had been relying solely on emergency funding through special assessments to complete projects.
Education First, Planning Second
When Reserve Advisors began working with the association, we knew our focus needed to extend beyond simply delivering a reserve study solution. Our engineer, while providing a long-range capital planning tool, understood that what this board needed was foundational education. Working alongside the board, our engineer cultivated an understanding of the importance of adequate reserves, detailing the difference between operating budgets and reserves and their respective uses. Because the property had not been funding reserves for over 20 years, they needed to understand they would be playing a bit of catch-up to avoid continued reliance on special assessments.
We also provided the board with knowledge on component useful lives, giving them awareness of when assets would need replacement and how a proactive maintenance schedule could extend the life of components and provide cost-saving benefits.
Prioritizing Needs for Informed Decision Making
During our initial meeting with the board, we were informed of ongoing roof issues despite a recent replacement. Because of these significant issues, we initially slotted a roof replacement for 2027, reflecting the cost for a cold roof system, which would hold up better long-term in the property’s climate. However, because cold roof systems are more expensive, the board had concerns about funding the project. We worked with them to create a plan that addressed critical repairs between 2024 and 2026, extending the full roof replacement to 2036 until adequate reserves could be accumulated.
To assist in making informed decisions, our engineer also:
- Outlined the differences in materials and costs for components like siding, offering guidance on choices tailored for local weather conditions
- Helped shift project priorities, delaying aesthetic-based projects like light fixture replacements until more critical needs were addressed
- Educated the board on the consequences of deferred maintenance
As a reserve study newcomer, this association needed to feel fully confident in its ability to utilize the funding plan. We provided multiple funding plans to the board, walking them through each and helping them make an informed decision on which strategy was the most realistic and actionable for their needs.
Resident Engagement
Given that the property had been implementing special assessments for all projects over the last 20 years, residents were understandably wary of the new reserve funding plan, wondering how these projects were previously funded. Our engineer volunteered to attend a town hall meeting with residents, explaining that special assessments are often large, unexpected, and out-of-pocket expenses that indicate poor planning and can even negatively impact property values. While residents of this association had become accustomed to special assessments, they understood that moving forward, they would be contributing to reserves stably and predictably in a way that spread the cost of ownership out fairly between current and future owners. Providing greater awareness of the community’s needs and long-term plan helped foster more substantial alignment between residents and the board, while also simplifying board decisions.
A New Path Forward
This small but determined association took a significant step toward responsible long-term planning by investing in a reserve study. Through collaboration and education, this association is now equipped with a clear understanding of its asset and maintenance needs and a realistic funding plan to meet those needs. The board now plans to update the reserve study regularly, ensuring that the strong foundation built through this initial study lasts for decades to come.