man holding reserve study

Reading Reserve Studies can be really confusing. Pacific Crest tries to put all the essential information in the front of the report. But many board members and owners stop there. Reserve Studies serve as a “Road Map” to guide an association through the ups and downs of of maintaining the association assets. However, understanding a Reserve Study is not always the easiest thing to do. Most Reserve Studies are approximately 40-60 pages long! From funding methods to percent funded levels, board members and managers have their work cut out for them.

Here are 3 tips to remember to understand your Reserve Study:

  1. Understanding the importance of percent funded as a barometer of the association financial health
  2. Read the Asset Inventory
  3. Understand your Reserve Study has to be updated on a yearly basis or the number will not be accurate

Don’t stumble with the percent funded level

The percent funded level is a good measure of the association’s overall financial health, but not the ultimate purpose of a Reserve Study. Understand that percent funded levels will fluctuate over time (30-year period typically) and the 100% funded level is a constant moving target. Read the percent funded level, understand that it will fluctuate with expenses.  Generally speaking healthy funded is 70% or above,  40%-70% is “Fair” and 0%-30% is “Poor”. Make note of it and move on

Read the Asset Inventory

This section contains the most detail and information about your community. Each page lists the location, condition, age, and replacement cost, for that specific asset. This should be used as a planning/budgeting tool for the future. Equipped with this knowledge, associations can make educated budgeting decisions to maintain the functionality and appearance of their community well into the future. In Washington common assets that have a lifespan of less than 30 years should be in the reserves study.

Understand your Reserve Study has a shelf life

One very important aspect to Reserve Studies is that their relevance fades over time. Just as your Operational budget requires an annual review, so too does a Reserve Study. Increasing labor costs, changes in economic trends, increases in petroleum products are all factors which affect the accuracy of your Reserve Study. With changes being constant, it is very important to have your Reserve Study reviewed by a credentialed specialist every year and obtain a with-site-visit every three years.