RESERVE STUDY 2023
Recently, as a matter of “ Best Practices,” the Board of the Hollows at Loch Lea commissioned a Reserve Study for our neighborhood. A copy of the final document is attached below.
Here are some questions you might have and the answers
A Reserve Study tries to identify the permanent and semi-permanent infrastructure in a neighborhood and determine how long it will last, how much it will cost to replace it, and how much to put away each year to pay for those rebuilds or replacements. In some states, Reserve Studies are required by law but they are always considered the prudent thing to do for HOAs of any size.2. How are they done?
In the spring, a group of Civil Engineers did an on-site study and determined nine areas that would eventually need rebuilding or replacement. They also put an estimated life span on each of those areas. They then worked with their financial people using industry data to determine the cost of replacement. Working backward, the financial experts determined how much should be put away in a Reserve Account so these items could be fully paid for when required without a huge assessment.
3. How much will it cost me?
The truth is we don’t know exactly. We generally have had free cash at the end of each year that we put into savings before budgeting operating expenses. That will now mostly go to the Reserve Account. Some things that the reserve specialists call replacement, we have previously called repair so that will be calculated in. We are also saving most of the reserve in an interest-bearing account to earn until it is needed.
The fact is, however, it’s a pay it now or pay it later situation. These items will certainly need to be replaced and, if there is no reserve, there will be an assessment at that time to pay the bill.
4. Who reads these studies?
Banks who are providing mortgages to potential buyers in the Hollows will want to see the financials for the organization including the Reserve Account. Certain government-backed loans require a Reserve Study and Account. They want to know that the borrower will not have an assessment that jeopardizes their mortgage payment. Buyers, themselves, will find benefit in knowing there is a provision for paying future major expenses.
We ask you to please read the study. If you have questions, please send an email to the Board at [email protected] and we’ll get back to you.