How to read an HOA reserve study
The reserve study is the HOA's plan for paying for big repairs. It's also one of the best predictors of whether owners will be asked for more money later.
What a reserve study is
A reserve study lists the association's major shared components, like roofs, siding, paving, elevators and boilers. For each one it estimates how long it will last and what replacing it will cost. It then compares what the HOA has saved against what it should have saved by now, and recommends how much to set aside each year.
The numbers to look at
- Percent funded. The reserve balance divided by the "fully funded balance", which is what the HOA should have saved by now for the wear that's already happened. It's the single most quoted number.
- The annual contribution. How much goes into reserves each year, and whether the budget actually matches what the study recommends.
- Big items coming due soon. Anything expensive in the next few years, especially if the balance couldn't cover it.
- The study's date. Costs change fast. A study that's many years old may understate what repairs will cost now.
What percent funded tells you
A common rule of thumb among reserve professionals:
- Under about 30%: weak. Special assessments or sharp dues increases are more likely when big repairs come due.
- About 30% to 70%: fair. Worth looking at what's coming due and whether contributions are rising.
- Above about 70%: strong. The HOA is generally in a good position to pay for repairs as planned.
It's a rule of thumb, not a verdict. A 40% funded association with a solid plan to catch up can be in better shape than a 60% one with a roof due next year and no plan.
Warning signs
- The budget contributes much less than the study recommends.
- Minutes mention putting off repairs, or bids far above the study's estimates.
- The HOA has borrowed money or is discussing a loan for repairs.
- There's no reserve study at all, or it's very old.
If reserves look weak, ask whether an assessment or dues increase is planned, and whether the seller will credit you for anything already approved. More on special assessments.
This guide is general information, not legal or financial advice.