Why Reserve Funds are not Optional for any COA

Why Reserve Funds are not Optional for any COA

Home Owner Associations and Condominium Associations are responsible for keeping the common areas of their property in good working order.  As these communities age or as unforeseen acts of God or accidents happen, sometimes an unexpected repair or replacement needs to take place.  For this reason, reserve funds are not optional, but an important part of the financial management for HOA and COAs.

What is a Reserve Fund?

Reserve funds are a type of savings account that the board uses to save for unexpected repairs or improvements that are separate from the general operating funds.  Prudent managers of the reserve funds will typically have anywhere from 15-40% of their overall asset value in a reserve fund.

What are Reserve Funds used for?

Reserve funds can be used for a variety of things including:

Roof Replacement

The average cost for a roof replacement in 2022 runs $8,000 in the USA according to an article on Forbes, however, roof prices like with all projects vary depending on location and the size of the project.  So a single damaged roof that needs to be replaced wouldn’t likely cause too much distress for any COA however if you have to replace 20 to 50 rooves, that can add up fast.  This is why holding a percentage of the value of the overall asset in a reserve fund is so important.

Swimming Pool Repairs

Regular pool maintenance should be covered by the operating expenses, however, sometimes unexpected damage or issues arise and those can be quite costly, anywhere from $100 to $20,000 depending on the issue and the size of the pool.

Painting of Exterior Buildings and Walls

Part of the purpose of the community owners associations is to maintain the common areas in good working order and that includes aesthetics like paint.  Many HOA and COA budgets will include painting in their operating fund, however, things such as storm damage, graffiti, pest damage, and weather damage can bring about unexpected painting projects that exceed the normal operating budget’s capacity to absorb the added cost.

Large “apartment” size buildings can be quite pricey to have painted, anywhere from $2200 to $4000 per building on average.

Repaving of Parking Lots

Repaving parking lots is an expensive proposition.  The national average parking lot costs $75,000 according to Asphalt Professionals.  If an HOA has multiple lots or larger than average lots to repave, this can easily become a reserve fund killer.  According to Reliable Paving, a parking lot should be repaved every 20 years.

Sidewalk Replacements

According to an article on Angi, the average 50-foot sidewalk repair will cost you between $1,000 and $3,000 dollars in the USA.  Many community owner associations have a plethora of sidewalks so this too can play a large role in eating up a reserve fund.

Electrical Repairs

Electrical repairs can be minor or major and a lot depends on if the breaker needs to be replaced.  The average electrician in the USA as of 2022 runs between $100-160 per hour, so for minor repairs, most budgets are able to absorb the added cost without too much issue.  However larger issues that require extensive work and circuits to be replaced can be upwards of $1000.  In fact the average circuit breaker replacement costs anywhere from $1,250-$3,000 so again depending on the number of buildings in an association, this is another reason to consider setting the budget according to the overall asset valuation.

Theft

Admittedly theft is the most frustrating item on our list.  In a perfect world, theft from the community, members and even employees wouldn’t happen, but sadly that is not the world we find ourselves in.  Theft happens in a variety of ways.  Some theft happens in the form of stolen property.  Theft can also happen from within the COA sadly enough.  However it happens, normally the operating budget is left in a pinch to replace the stolen item or money and having a reserve fund helps cover the disheartening loss.

Set Your Reserve Fund Based on Value of Assets

As we have mentioned already in this article, our suggestion is to set your reserve fund based on a percentage of your overall asset valuation.  The more value you have, the higher percentage you may want to consider saving in reserve.  The typical reserve fund is set anywhere from 15%-40% of overall asset value.  If you want help figuring out the best figure for your COA/HOA to set in reserve, contact us here at C.O.R.E. Services and we’d be happy to discuss it with you.

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