When managing a homeowners association, reserve funding decisions made by the HOA board have a profound impact on the community’s financial health and quality of life. By examining the REAL experiences of three different communities, we can put into practice valuable lessons from their reserve fund wins and fails. Which HOA are you?
The Struggling HOA
A large, age-restricted master-planned community with over 2,000 homes faced significant challenges due to inconsistent reserve funding decisions. Initially, the association was reasonably well-funded at about 70%, but due to a combination of underfunding and inflation, their reserve fund strength plummeted to an insufferable 11%.
This dire situation led to a $5.8 million special assessment to cover essential repairs and maintenance. The association’s reluctance to invest in professional reserve studies and preference for a minimal DIY approach contributed to their downfall. Their example shows the danger of penny-pinching on reserve studies and the critical need for consistent, adequate HOA reserve funding.
The Stable HOA
Another large association, with a mix of amenities including pools and basketball courts, showcases the benefits of strong reserve funding. By following a disciplined approach to reserve studies and funding, they maintained a high reserve fund level, peaking at 136% before purposely reducing it to around 100%.
Their strong financial position allowed them the flexibility to upgrade facilities (like converting a basketball court to a pickleball court to met new activity demands) and preferred pricing with vendors. Stabilizing your HOA like this illustrates the universal benefits of being determined to maintain a healthy HOA reserve fund.
The Restored HOA
Did you know your reserve fund could make a comeback? Watch how this condo association with over 100 units modeled the power of strategic planning. Stuck at 15% funded, they worked their way up to 89 percent funded through consistent reserve funding and a special assessment.
Their journey from a dangerously low reserve level to a well-funded status proves that any HOA can do it! It all depends on the board’s willingness to make tough, strategic decisions for the entire community’s benefit.
Key Reserve Funding Tips:
Reserve Study Consistency: Regular, professional reserve studies and consistent reserve funding are non-negotiable for financial health.
Don’t Delay: Delaying maintenance or underfunding reserves can lead to exorbitant costs down the line, including special assessments.
Momentum Matters: Building and maintaining a strong reserve fund takes time and commitment. It’s about gradual improvement and avoiding harmful reactions to temporary situations.
HOA Education & Engagement: Board members must educate themselves on the financial side effects of their decisions and engage with professional advisors to preserve through their community’s unique challenges.
HOA boards that approach reserve funding with discipline and a willingness to invest in professional guidance will improve quality of life and financial stability. Boards that choose short-term savings over long-term planning are sure to face major challenges with project completion, homeowner satisfaction, and special assessment risk.
As an HOA board member, the power to shape your community’s future is in your hands. Make decisions that you’ll be proud of years down the line, ensuring your community not only survives but thrives.