When do you Perform a Reserve Study?
In the live Q&A session after a one of last week's webinars, one participant asked when it was best to perform a Reserve Study for their association... suggesting that he thought it would be best in the last quarter of a major component's life.
That was a good idea, as it is important to make sure the association is prepared as it approaches a major project. But for most associations, waiting until "soon before" a major project means waiting too long.
Most Reserve projects take years of financial preparation in order to avoid last minute "catchup" panic-level Reserve contributions, or a special assessment. So I suggested that it is actually more important to do a Reserve Study early in the life of a major component, to make sure the association is moving in the right direction financially, when it still has plenty of years to collect Reserves.
Of course, the best time to perform a Reserve Study is every year. Each year, some of an association's components are in the early stages of their Useful Life (when it is a good idea to do a Reserve Study update), and each year some of an association's components are nearing the end of their Useful Life (when it is also a good idea to do a Reserve Study update). We find that when we update a Reserve Study only every third or fifth year, we often are recommending significant adjustments to their Reserve contribution rate. But for those associations that have us update their Reserve Study annually or every-other year, we typically recommend only minor adjustments to their Reserve Study.
Becoming well prepared financially happens in two stages - getting into the right ballpark, and making adjustments as a major project approaches (when the scope and timing becomes more clear). So update your Reserve Study annually, to make sure both are happening!