Lack of Reserves in Condos and HOAs is a Serious Problem

Condominium and Homeowner Association communities started in the 1970s and are still growing.   These communities are just now beginning to discover hidden costs and unexpected major repairs.    Lack of a Reserve Fund or an underfunded Reserve is a very serious problem for Condominium and Homeowners Associations.

Lack of Reserves in Community Associations is a common and serious problem

In most instances during the housing boom, local cities and counties did not take on the burden of providing county services to the rapidly expanding suburbs.  As a result, developers included clauses stating that the responsibility for maintenance of roads, storm water run off systems, and some other utilities lies soley with the homeowners within the development.  If your development is approaching the five or ten year mark, most likely your community roads and other systems are ready for maintenance and/or repairs.  The costs associated can be significant.

Many small, self-managed HOAs are barely collecting enough in annual assessments to cover their basic operating costs; seriously compounding the problem as there are no reserve funds set aside to pay for the needed maintenance and repairs.

Some states require homeowners and condominium associations to conduct reserve studies.  HOAs need to understand what common elements they are responsible for and should not wait for legislation to mandate reserves.

There are several options to prepare a reserve study:  Hire an engineer who is experienced working with condos and HOAs, or create your own (rough draft) of a reserve study.   Create a list of what is owned by the community – the common area components.  These include roofs, pools, siding, streets hvac, elevators and more.  Which of these items will need replacement or costly repairs over the long term?  Next, contact several vendors and request estimates on the cost of annual maintenance, short-term and long-term repair or replacement costs for each item on the list.  The costs associated with regular maintenance should be included in the associations’ annual operating budget.  The long term costs should be factored into a reserve plan and a separate budget to fund this plan should also be created.