Is there a “Standard” % of Budget that should go towards Reserves?

I wish the answer was as simple as the question. Since associations come in all different types and sizes, and in that variety there are significant differences in the common areas maintained by the association and the Operational Budget expenses, the answer is “no”.

What we see among our clients is that to have “adequate” Reserve contributions, meaning something close to their ongoing rate of common area deterioration, associations typically need to be setting aside somewhere between 15% and 40% of their annual budget towards Reserves. That is a large range, but it makes two points.

1) Different associations have different types of assets to maintain, so there is no “one-size-fits-all” answer. Each association, on the basis of the assets it is responsible to maintain and their size (affecting economies of scale), has different ongoing “costs” of deterioration needing to be offset by Reserve contributions.

2) Each association also has different Operating Budget priorities. Two identical associations may have significantly different Operating Budgets due to more frequent trash pickup, more frequent landscape care visits, more frequent pool cleaning, more hours of guard service, different levels of insurance coverage or management services, etc.

So between Reserve costs of deterioration that vary from one association to another, and Operating Budgets that also vary from one association to another, it is no surprise that there is not a “standard” % of budget that should go towards Reserves.

That said, the government has set a minimum standard, of sorts, requiring that (among many other things) an association contribute at least 10% of its budget towards Reserves in order to qualify for FHA financing. This 10% rate is not meant to suggest adequacy, it is just a number selected by the govt to identify associations that are contributing to Reserves from those which are not.

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