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Creating a Dynamic Long Term Reserve Plan for your HOA

Dynamic Reserve Management Planning

How “converting” your reserve study into a financial sandbox can help your HOA plan for the future and tell the fiscal story of your community

An HOA is like a body, a car, a bridge. It needs care, regular checkups, physical assessments checking that important features are in working order. At times, one may need to set funds aside for future repairs, major replacements, or upgrades. As with these examples, this assessment is conducted by an expert. A mechanic for a car, physician for a body, engineer for a bridge, a reserve specialist for an HOA. For those unaware, a reserve study is a comprehensive assessment of the remaining usable life of the physical common elements of a property, their estimated year of replacement, and associated cost. A formula is then applied to suggest appropriate funding for these projects, an annual “contribution” to a reserve fund, and relative monthly assessment amount for owners in order to “fund” the same.

Sounds great, except there are problems. First, some HOAs choose to operate without a HOA reserve study citing cost or innocent ignorance to their existence. Second, most HOAs are “underfunded” – they have a reserve study, but the budget doesn’t afford funding it. Third, reserve studies are “static” – they may not account for replacing an existing component with a new technology or product, and you cannot modify the HOA reserve study. They’re static, and generally in PDF form.

Nearly all HOAs certainly need a reserve study, truly there is no other way to responsibly plan for an HOAs future, and no better means of doing so. While some Boards may use a stick-a-wet-finger-in-the-air approach, the days of “knowing a guy” who can “fix that for cheap” or a solitary Board member maintaining a Excel file of upcoming repairs on their laptop are coming to an end. After the catastrophe of Champlain Towers in Florida, lawmakers are taking a sober look at the national deferred maintenance problem in the US, and legislation to require HOAs to hold a reserve study, and fund it, are coming. The wild west of future planning in an HOA is dead.

But that brings us to the third challenge stated above. Even if the HOA has a reserve study, the truth is that the study is a brilliant but static guide. What we mean is, the study can’t be edited, nor can it serve as a financial sandbox to consider hypothetical projects. If a major component, say a boiler, has a “current year” replacement date, but an expert inspection states the boiler has another six years of life, you can’t push the repair out in the reserve study to adjust the financial outlay.

If a Board wish to insert a possible project that is not in the study (studies only cover existing or original components, not hypothetical upgrades), say a solar array on the roof, EV charging stations, a lobby remodel, or converting a party room into a yoga studio, there’s no way to insert these comparisons to workshop them financially alongside standard inclusions. By no means a criticism of reserve studies, these limitations result in a mishmash of workarounds, usually excel files or multiple draft budgets.

Solutions exist. Platforms like Smart Property, a web-based dynamic reserve planning platform, will convert an existing reserve study into a living document. This provides an HOA with a fully-editable, customizable and dynamic living financial planning tool. It allows us to account for inflation, new technologies, essential changes to building components from new regulations, to consider the ROI on sustainability projects, to inventory major building components and ensure they’re being maintained in adherence to warranty requirements. If homeowners ask “what would it cost to replace the balconies and install mini splits in X years” we could model this easily and provide this hypothetical to them as it related to their pocketbooks. Here in Colorado, regulations are changing fast on water, energy, and natural gas usage. Most multi story HOAs in Denver specifically must measure and report their energy efficiency and make major upgrades to existing components in the long term, to avoid fines. A cloud based reserve planning tool will allow us to model endless hypothetical projects, when we might complete them, what programs might exist to help fund them, what a hypothetical project would cost owners and by how much, and what our return on investment might be, in terms of utility savings.

A dynamic reserve management planning tool opens up the reserve study concept and brings a robust future planning tool to the fingertips of boards and managers, reducing the risk of special assessments, helping Boards tell the financial story of the HOA to, let’s face it, disengaged owners, and sets the HOA up for success in the face of a shifting landscape. And we’re here to help! CAP is currently proud to offer the use of Smart Property to all multi-story HOAs free of charge. All an HOA needs is an active reserve study.