Why a Reserve Study Should Be Your Building’s Bible

Why a Reserve Study Should Be Your Building’s Bible
Reserve study financial bar graphs report

by Diana Turowski, LMS Property Manager, 565 West Quincy Condominium Association

 

In a perfect world, you would always have enough in savings to be able to tackle any emergency in your home. But what makes things any different with a condo or homeowner association? What if we told you that you could predict many of those large expenses, and plan for them? That’s what your Reserve Study does for your association.

Think of your reserves as your savings account, piggy bank, the money you keep in the bible for emergencies. You always want to have enough in there to cover any large expenses you may encounter. Your Reserve Study is a 30-year, two-part plan — what expenses you can predict (and when), and how you can save enough money to cover them. For example, if you know your roof is going to last 15 years with Preventative Maintenance , you can set a plan where you save enough money over the years to pay for it in year 15 without a special assessment. If you know your streets will need resurfacing every 10 years; you should plan to save up and pay for those instead of grasping for dollars every 10 years.

Another thing that is hard to grasp are all the items that need to be addressed in an association over 30 years. Some of them are visible like a lobby update or resurfaced streets; some of them are behind the scenes like that new roof or sewer work. Reserve Studies go through each and every one of those components, estimate how long they will last, and put an estimated price on them.

How do you make the Reserve Study your bible? By following it religiously. Every year when you do your association budget, you should pull out your Reserve Study and see what they estimate for the next five years, at the least, and put those into your capital budget. You need to then examine your anticipated revenues and balance to see if they’ll be enough to cover those expenses. Generally every year there’s unexpected repairs, so make sure you have a cushion to handle them. One goal is to try to do a visible project every year, so your residents can see their reserves at work. It should be something minor like restriping the parking lot or upgrading the landscaping, but it shows that your capital budget is being used in ways that benefit the residents.

When you finally decide you need that Reserve Study, how do you go about finding a vendor? Unfortunately, there’s no license for this, so anyone can hold themselves out as a Reserve Study consultant. As with any vendor, experience is key, as is the absence of conflicts of interest. A Reserve Study consultant that steers you toward certain contractors to repair the items they recommend is not kosher.

Finally, if you don’t have a Reserve Study, you operate in “crisis mode,” whirling from emergency to disaster, making repairs (often at a premium price) that could have been planned for properly or combined with another. Piece-meal repairs don’t do a building justice. A thought-out plan of action is the way to effectively manage an association. The word “pro-active” gets bandied around a great deal, but that’s exactly what a Reserve Study is — Pro-Active.