Reserve Studies: Roadmaps to Financial Health

Imagine learning your community’s roofs need replacement — and discovering your reserve fund can’t cover it. Unfortunately, that’s not an uncommon scenario. Industry data shows that roughly 70% of homeowners’ associations are underfunded, with about 40% considered moderately underfunded and 30% severely underfunded.

Without adequate reserves, boards face tough decisions – levy special assessments, increase dues, or defer maintenance — each with real financial and reputational costs. That’s where a well-executed reserve study comes in. It’s the difference between managing proactively and managing in crisis mode.

The Financial Blueprint Every Community Needs

Think of a reserve study as your community’s long-term financial roadmap. It evaluates the condition and remaining lifespan of major shared assets — roofs, elevators, HVAC systems, pools, roads, and more — and projects the cost to repair or replace them when needed.

It also includes a multi-year funding plan that helps your association save strategically for those future expenses. The goal: to keep the community at least 70% to 100% funded, meaning there’s enough money set aside to cover projected costs without surprise assessments or emergency dues increases.

Consider it preventive maintenance for your finances — an essential step to protect homeowners, preserve property values, and maintain peace of mind.

Why They Matter

Reserve studies aren’t just about finances — they build stability, transparency, and trust. They help boards lead confidently, plan proactively, and maintain financial health for the long term.

A current reserve study helps your board and community:

• Strengthen leadership by enabling informed, data-driven decisions and demonstrates fiduciary responsibility.
• Avoid conflict by demonstrating transparency and preparedness, reducing the need for emergency assessments or fee hikes.
• Preserve continuity by serving as a roadmap for future boards, maintaining consistency in long-term planning and decision-making.
• Reinforce credibility by reassuring lenders, insurers, and homeowners that the association is financially sound and responsibly managed.
• Stay future-ready by ensuring your community has the funds — and the foresight — to handle major repairs and capital projects.

Required by Some – Recommended for All

Not all states legally require reserve studies, but the list is growing. About a dozen — including California, Florida, and Virginia— mandate regular studies for HOAs and condominium associations. Many others strongly recommend them as part of sound governance practices.

Even in states without formal requirements, most industry experts consider reserve studies a best practice – including CAI, which encourages associations to update their reserve studies every three to five years.

Whether required or not, reserve studies are an essential tool for helping communities thrive.

A Case for Experts

Creating a reserve study is a complex process, blending engineering, construction expertise, and financial forecasting.

That’s why it’s best to hire a credentialed reserve study professional or firm with experience in visually inspecting assets, calculating life expectancies, estimating future costs, and creating a funding model that aligns with your community’s goals and state laws.

Before making a decision, check your governing documents for requirements and make sure the provider has a successful track record with similar communities.

Next Steps

If your community hasn’t conducted a reserve study in the past three to five years, it’s time for an update. Start by evaluating the accuracy of your current study, then schedule a new one if conditions have changed — such as recent repairs, renovations, or inflation pressures.

Once completed, consider your reserve study is a living document. Review it annually, compare actual spending to projections, and adjust your funding plan as needed. A study is only effective if it’s kept up-to-date.

The payoff? Fewer financial surprises, healthier reserves, and a stronger, more confident community, now and in the future.