Here are 3 easy to remember tips to help you understand your Reserve Study:
- Understanding the importance of percent funded as a barometer of the association financial health
- Read the Asset Inventory
- 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.