HOA ReservesHOA boards and committees have to think about not only its community’s residents, but also its finances, taking care of day-to-day management and having to think ahead incase of unforeseen circumstances. With that being said, each year the committee sets up the community’s operating budget that deals with things like insurance premiums, utility bills, management fees, landscaping maintenance and the like.

With so many immediate concerns that need to be addressed, reserve contributions aren’t always at the top of the list. Thinking about reserve contributions is usually only done if the association has a surplus of funds at the end of the year. And many homeowners that are part of the HOA community don’t really think they’ll still live there when these actual expenses will happen, so they figure they shouldn’t have to pay into a reserve fund. However, they should still add reserve contributions to a community’s operating budget for a number of reasons and here are a few:

  • It’s only fair
    Just because homeowners don’t think they’ll live in the community that long to see their reserve contributions go to good use doesn’t mean they shouldn’t contribute. It’s not fair to let new owners cover the costs of a new roof and the current owners benefit from enjoying many years of maintenance-free roofs without setting aside some money for its repair in, let’s say, 30 years. These new owners shouldn’t get stuck with an expensive payment because of past owners and their neglect to set aside reserves for a new roof when it finally gives out. And this can be said about other things like asphalt, paint surfaces and mechanical equipment that can go out over time because of general wear and tear.
  • Investment Protection
    Buying a home is an investment and protecting that investment should be a top concern for a homeowner. This is what reserve contributions do since it will help maintain the property’s value. The aim for reserve contributions is to budget for future improvements so that the property continues to look good and attractive, which only adds to not only the house’s value, but also the value to the community and HOA. This will attract potential buyers of houses in the community and keep the property values high.
  • Mandatory
    In may HOA communities, reserve contributions are required and are included in that community’s governing documents. A board member’s duty is to maintain and preserve all of the association’s assets and this is primarily the all of the houses in its community. And part of their fiduciary responsibility is collecting reserve contributions. This amount should be set bases on potential enhancements of the community and relayed to its residents. This is usually a practice that the majority of HOA communities adopt. And there are 30 states right now with some kind of reserve funding legislation. To find out more if your state is one of them, you must check your HOA’s governing documents. If you’re not sure about this, contact an HOA Management company for help.
  • More Convenient
    Good judgment is key in business and it’s just a lot more convenient to set aside a small amount of funds each month than have to come up with a lot of money later. If you don’t have reserve contributions on a monthly basis and then try and ask residents to fork over tons of money to fix the community’s asphalt, chances are, you’ll have a hard time trying to get them to contribute the needed funds. When they give a small amount monthly, they automatically know that they are charged a little extra in case anything were to happen. Proper reserve contributions form homeowners usually amount to a few dollars a day (per unit), so it won’t be hard for homeowners to abide to. This little amount will grow every year thanks to compound interest and will grow big enough to replace roofs and any other things a community may need.
  • They Must Be Kept Funded
    Properly maintaining these reserve funds should be a top priority of a HOA association and shouldn’t be dipped into for regular, ongoing expenses. Even if the HOA’s reserve fund is going strong now, it must ensure that it stays that way, even if they have to raise fees to keep up with maintenance costs. Community management companies can often help HOAs set up proper reserve funds.