Having adequate reserves is like having gas in your car. If you don’t adequately fill your tank you will be unable to reach your destination of choice. The importance of an adequate reserve is the empowerment it gives your association to maximize the full potential of property value by replacing common area components at the end of its lifecycle.
WHAT IS “WELL- FUNDED?”
A tricky and always debated answer. In our experience, a well funded association has 70% or higher as a percentage funding level. This means the reserve account has adequately funded balances for replacement costs of future requirements. In addition it gives the association the versatility to handle any unforeseen expenditures.
A percentage that gives the association a picture of its financial health. Percentage funding is derived from taking into account all of the components in their useful lifecycle respectively, and the current reserve balance available to replace these components.
SNAPSHOT IN TIME
The reserve study tells the story from today’s perspective. It takes into account the remaining life and replacement costs of the associations’ components as well as current interest rates and inflation. That is why it is critical have the reserve study updated.