If you are like most people, you might ask “what is a reserve study and why do I care?” Let’s take a minute to understand what it is and why it is important. A Reserve Study, commonly called an RS, is a technical and financial analysis of assets within a common interest development (CID) such as a timeshare resort, condominium complex or condo hotel. Depending on the type of association that governs the property and the association’s declaration or by-laws, reserve analysis and funding requirements vary. Requirements for the establishment of association reserve accounts also vary from state to state.
The Reserve Study is simply a tool used by associations to determine what is needed to maintain the property. Reserve accounts are established and maintained to hold funds for the long-term or deferred maintenance and replacement of any assets that the associations is responsible for.
Even though these studies tend to be lengthy and not very exciting to read… it is worth your time and effort to know what they have to say if you are an owner in that CID. Your association’s Reserve Study should include the following elements in a clear, easily understood format:
· Components, with a useful life of less then 30 years, need to be inventoried in detail.
· What the remaining useful life estimate of each component is.
· The current replacement cost for each component.
· An analysis of the current financial condition of the association.
· Funding recommendations, disclosures and a funding summery.
Time and usage will always bring about the deterioration of common elements of any property, so the establishment of an association reserve account is both necessary and prudent. The Reserve Study ensures that a funding schedule is established for the maintenance, repair and replacement of major common area components.
“A Reserve Study is sometimes looked at as a necessary evil, when in fact it is much like going to the doctor for a physical, when you are feeling fine… It’s like a physical for your property!” – Larry Vanderhoof (Reserve Professional)
A physical for your property… what a great idea! A check up, if you will, on the financial stability of your investment in a condominium or timeshare property. Wouldn’t you agree that the Reserve Study really is our friend? Now that you understand what a reserve study is, you are no doubt wondering if you need one and why!
Remember what our industry professional Mr. Vanderhoof said, “It’s like a physical for your property!”
Why do you get an annual physical for yourselves and your loved ones? To see how your health is of course, how is your cholesterol, your blood sugar, your blood pressure and what are ‘your vital signs’. This information tells your physician about your overall health and if there are signs of future problems.
So, why not do the same for your investments. How are the financial “signs” looking for your investment property? Could it be that our friend the Reserve Study will provide us with vital information about the overall health of our condominium or vacation property?
Here are just a few of the reasons that a Reserve study should be done on all common interest developments:
· The RS provides management accountability in the form of a written, historical record and helps to document good stewardship of association assets and reserves.
· The RS offers an invaluable management tool for long range planning and advanced scheduling of major repairs o