Reserve Studies and Why Every Project Needs One!

Editor’s Note: Learn more from a webinar on reserve studies we are planning with National Condo Advisors for January 2017; and at the 2017 National Cohousing Conference, where Darlene, and cohousers Sharon Villines and Lyons Witten will be presenting about reserve studies. Also at the conference, National Condo Advisors will be exhibiting as part of their Sustaining Sponsorship of the Conference.

From Wikipedia: Reserve studies are planning tools designed to help the board [in our case, the community] anticipate, and prepare for, the property’s [in our case, our common facilities] major repair and replacement projects. For example, such projects would include: replacement of the roof on the building(s), replacement of the boiler, retrofit of the fire alarm devices, and resurfacing of the roadways.

Reserve Studies are standard in the industry and are an important financial planning tool to forecast a property’s budget and mitigate the potential for special assessments. In addition to keeping homeowners apprised of the condition of the common areas within the project, reserve studies are required by many lenders, Fannie Mae, and FHA.

Reserve Study: Important Reasons To Have One and Keep It Updated

** Helps maintain the value and owner’s investment by identifying major capital components that will need replacement, the timeline for replacement and cost.

** Limits unexpected surprises relating to replacement of building components.

** An important tool to assist the board in creating the homeowners’ association budget.

** FHA, Fannie Mae, VA, Freddie Mac and most mortgage lending institutions require that the HOA’s annual budget include a 10% reserve budget line-item for capital improvements. Federal agencies and many lenders will accept a reserve study in lieu of a 10% contribution.

** Enables home buyers to be eligible for federal lending programs that provide affordable loan products, expanding the pool of potential buyers. Without the availability of these types of loan programs, mortgage funding is limited to conventional lending which typically requires a down payment of 20%.

** Could mitigate the need for special assessments and prevent potential foreclosures. Without a reserve study, a community may not be prepared for the replacement of capital improvements, requiring homeowners pay for these costs by means of a “special assessment” in addition to their regular HOA fees. If a homeowner cannot afford the added financial burden, this can contribute to delinquencies to either the monthly dues, mortgage payment or both.

** IT’S MAKES GOOD BUSINESS SENSE!! A reserve study is a road map that allows decisions to be made which will be efficient and effective for the long term.

Darlene Shannon

Chief Business Development Officer

National Condo Advisors, LLC

888-726-6361 Ext. 306

Category: Reserves

Tags: budget, Finance, Resources

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