The Good, the Bad and the Ugly What Reserve Studies Can Tell Us

While natural disasters causing catastrophic property damages are increasing every year, associations also have to be prepared for other unexpected expenses, such as a roof replacement or a new heating and cooling system. These major capital improvements projects come at great costs. Often residents deem the process as burdensome, taxing or both. Boards, on the other hand, should be at ease knowing that adequate funds are available for such projects; however, all too often this is not the case.

But what exactly are capital improvements as defined by industry professionals? “When referring to capital improvements as related to a residential community one is speaking of the property components that have a defined useful life and will need replacement at some point in the future,” says John Hersey of J. Hershey Architects based in Libertyville. “These components may be site or building items such as pavement, monument signs, wall cladding and roofing.”

While usually well-intended, associations, regardless of location or residential income levels, tend to make common mistakes when it comes to budgeting for required improvements such as new sidewalks.

“The biggest problem boards face is not having the information they need to adequately budget and make critical decisions,” says Stuart Wilkinson, a reserve specialist with the Reserve Study Group, a national consulting firm. “Boards need to arm themselves with information, including a reserve study that helps them not only understand their current circumstances but what options they have moving forward.”

Nik Clark, director of Client Services for the Milwaukee-based Reserve Advisors, says “failure to plan” is probably the most common mistake he sees on a regular basis. “Historically, many associations just didn’t plan/budget for major capital expenditures and took a ‘wait until it breaks’ mentality,” says Clark. “Other common mistakes are trying to do-it-yourself (DIY) without the expertise and knowledge to compile a comprehensive forecast.”


Related Articles

Funding Your Reserves

Banking Against Surprises

Planning for the Future

Keeping It All in Reserve

Don’t Raid the Cookie Jar

Capital Budgeting is Essential