What is a reserve study?
A reserve study is an analysis of the physical components and the financial status, including long-term planning and funding of a Condo or Homeowners’ Association. A reserve study provides you with a savings plan which allows you to make small monthly payments. This reserve account is, therefore, available for funding when you need to repair or replace something.
You might be wondering why you need to have a reserve study, so we’ll provide you with some good reasons for having one.
1 – Keeping a reserve study means there are no lump sum payments
By paying a small amount each month, you can be sure there will be no sudden need to pay a large special assessment to obtain a loan. You only pay for what you use, so you only pay for any depreciation that occurs during your residency. The property is well-maintained and then no one gets stuck with a larger payment than another.
2 – A reserve study increases resale value
A buyer will recognize the value of your property if you have a reserve fund based on long-term planning to maintain it because it decreases the chances of incurring a large special assessment. Lenders will be more likely to lend more, at a different mortgage rate if they see you as a low-risk investment. By having a reserve, you are proving that you have considered the true cost and value of maintaining a property.
3 – A reserve study will assess your payments based on your assets
A reserve study company provides many reserve study services to associations looking to start a reserve study for their property. One such service is the providing of a reserve study consultant to carry out a site visit and assess the value, the cost of replacing, and how much should be set aside monthly to have as a contingency fund.
4 – A reserve study is a long-term plan
By having a reserve study, you are ensuring your community is prepared for any unexpected repairs or replacements of assets. Continuous funding of small amounts is a better way to accrue financial reserves for community repairs than having a large special assessment.
5 – Reserve studies provide security for residents
While there is the option of applying for a special assessment for a home repair, it is often difficult for an individual to receive approval of funding for repairs. Special assessments are difficult to obtain, unfair and often unpleasant to go through. If a resident is on a fixed income, uniform monthly assessments is a better option.
6 – There are reserve study companies everywhere
The services provided by reserve study companies differ based on the company, but a San Diego reserve study should include reserves for the same basic repairs and maintenance as a reserve study in other parts of California. There is no reason for your community’s association to not have a reserve study, because the small monthly payments will accumulate over time, providing you with a large sum to draw upon when and if you need it.