RESERVE FUNDS FOR HOMEOWNERS’ ASSOCIATIONS
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HOAs and Financial Responsibility When acquiring a new property, it is important to consider all the variables involved in operational and maintenance expenses. In this sense, reserve funds play an essential role in ensuring assets are managed properly. In the first instance, when managing townhomes, coops, or condos, common areas are the responsibility of all community owners; however, the only way to channel all these individual responsibilities is by creating an Association. Therefore, this entity has a board in charge of collecting the HOA’s fees and enforcing the community rules.
What is a Reserve Fund? It is important to bear in mind that HOA finances are mainly allocated to two financial accounts: the operating fund and the reserve fund. Thus, a reserve fund a financial account created to meet the unexpected needs of a residential community. It means that it is a highly liquid asset set aside by HOAs to meet future costs or financial obligations that can arise unexpectedly.
When managing HOA reserve funds, association members are very concerned about how these funds will be spent. And the uses of reserve funds must be established by the community’s rules, regulations, accountability, and bylaws. In this context, the most common purposes of reserve funds include: Major landscaping and fencing projects in common areas Major repair projects such as roof replacements in common areas Large maintenance projects such as the painting of clubhouses and the replacement of a pump at the community pool
HOW TO ESTABLISH A HOA RESERVE FUND? To create a reserve fund, we need to know how much money we need for it. Therefore, a reserve fund study will be necessary to determine the fees. When conducting a reserve fund study, an HOA often hires an outside firm that inspects the property to determine short – and long-term fixing and upgrading needs. And this process aims to determine the costs of those repairs.
The correct level of reserve funding is 70 percent, and it applies when associations cannot attain 100 percent funding.
THE CORRECT LEVEL OF RESERVE FUNDING
Finally, proper reserve fund management is vital to protect your community assets. In this sense, self-managed HOAs have no enough financial expertise and experience to handle this matter. Therefore, the best option is to hire trusted professionals on HOA management in Raleigh, NC.
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