Navigating the Reserve Study Process: A Comprehensive Guide

Ensuring your community associations’ longevity and financial health requires foresight and strategic planning. One indispensable tool in your arsenal is the reserve study—a comprehensive examination of a property’s physical components and financial needs and a long-term capital plan to meet those needs. In this guide, we’ll walk you through each step of conducting a reserve study, demystifying the process, and empowering community associations to feel confident about the reserve study process. 

Of course, the first step in the process is deciding to conduct a reserve study, which begins with board approval. Then, boards will shop for a firm to complete their study, generally collecting 2-3 bids before deciding on the firm whose study will best suit their needs. After contracts are signed and inspection dates are set, the real fun begins. 

Pre-InspectionPre-Inspection Preparations: Setting the Stage for Success

Before the physical inspection of your association, you will provide essential documents and information such as operating budgets, interest rates on reserve savings accounts, and pertinent declarations and bylaws. Clarity on association responsibilities as they pertain to reserve components and details on ongoing projects create a foundation for a thorough and customized examination of the association. Additionally, any inspection day logistics will be worked out, including how your reserve study consultant will enter the community and in what building they will meet you for the pre-inspection kickoff meeting.  

Kickoff Meeting: Building Understanding and Collaboration

The kickoff meeting serves as the nexus between preparation and action. Including your reserve study consultant, management, and/or board representatives and lasting about an hour, this meeting—whether in person or virtual—facilitates a deep understanding of the community’s history and upcoming plans. Because associations are encouraged to bring forth specific questions and concerns to foster open dialogue and collaboration, it can be helpful in certain situations for multiple board members, the property manager, or the maintenance manager who is familiar with the property’s history to be in attendance. Involving relevant individuals in this meeting is helpful to ensure component-specific concerns are addressed and the history of your property is properly documented. 

 

Onsite Inspection: Unveiling the Property’s Story 

Following the kickoff meeting, the reserve specialist begins their physical inspection. The inspection will look different depending on the property type. Still, generally speaking, the engineer needs to work through the entire property, measuring, documenting, photographing, and assessing the condition of each common element. They will pay special attention to the problem areas communicated during the kickoff meeting. During the first part of the inspection, the engineer will need access to restricted areas. For HOAs, this may be pool areas, mechanical rooms, clubhouses, or gated sections. For condos/townhomes/high rises, this could be interior corridors, mechanical spaces, or garages.

Following the initial inspection phase, the engineer will independently inspect the rest of the property. Engineers meticulously assess the conditions and deterioration of common elements, ensuring a comprehensive understanding of the property’s condition. 

The reserve specialist takes photos to document the condition of the common elements, which are used later in the report. Because the engineer will wander the property independently and may appear out of the ordinary, notifying residents in advance sets the stage for a smooth onsite inspection with minimal homeowner alarm. 

 

Behind the Scenes: Financial Analysis 

Reserve study specialists are not just versed in physical inspections but also financial assessments. Your consultant will utilize the documents collected before the inspection to dive deep into your association’s financial health, starting with your fund status. Fund status is the current amount in the reserve fund or, more often, the amount in reserves at the beginning of the fiscal year. 

Using information from their inspection, the engineer will determine the remaining useful life of each component, or how much longer the component will last, and gather a cost estimate for its replacement. This information and the fund status merge to create the foundation of a recommended funding plan. The funding plan ensures adequate reserves will be available to complete repair or replacement projects for a component when its useful life ends. The goal is to offset any anticipated major expenditures as they occur so your community’s complete financial health – revenue, expenses, and reserve fund balance are all thoroughly analyzed. 

The Report: Delivering Comprehensive Insights

The final reserve study report empowers associations with a detailed understanding of their property’s condition and future needs and includes the following information:

Executive Summary including critical findings, prioritization of near-term capital projects, and projected reserve fund cash flow over the next 30 years.

Reserve Expenditures Table that presents your entire component inventory and prioritizes each of your community’s capital projects.

Reserve Funding Plan that supports your community’s future project needs and minimizes the risk of additional assessments.

Asset-specific insights communicate the current condition of each component using detailed photos, project-specific diagrams that help you understand the scope of upcoming projects and recommended maintenance activities that will help extend the life of your assets.

Implementation: Navigating the Future with Confidence

The end of the process marks the beginning of a new phase – clarity of the true cost of property ownership in your community. The reserve study findings and actionable insights support your community’s long-term physical and financial health, and through implementing the study’s recommendations, keep your residents safe and happy. 

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