The Role of Reserve Studies Budgeting for Major Improvements

One of the trickiest things in planning a budget for your building or HOA is the surprise maintenance problem or structural crisis that comes out of nowhere and depletes your community’s bank account. While you might be prepared for snow removal, (recent blizzards, aside) you may not have the funds necessary to fix a collapsed roof or façade.

While there may be no way to truly prepare for a freak storm or undiagnosed structural problem, having an adequately funded reserve can lessen the shock when these kinds of things rear their heads.

The First Step

“Capital improvements are any repair or replacement of assets (outside of routine annual maintenance) that extends or increases the useful life of that asset,” explains Nik Clark, director of client services for Reserve Advisors in Milwaukee, and they require a different kind of budgeting than regular operating expenses because the expenditures are infrequent, usually high-ticket, and outside of what an association normally has to plan for.

“If a building community is really behind the curve with reserves and major maintenance projects, the first thing they should do is hire an engineering company to process a reserve study,” Clark says. This study will show the life expectancy of the buildings’ components along with cost of replacement when needed.

“All buildings are different based on the type of materials that are used, the condition it is in and how many common areas they have. To determine the money needed, they need to run the actual calculations,” says Kevin Bobb, an engineer reserve specialist and the founder of Building Reserves in Milwaukee. “A pool or clubhouse or a fitness room or underground parking can really increase an association's reserve requirements.”


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