Paying for Reserve Study

In CA, we only can pay for items listed in the reserve study. We too have a highest level study every 3 years and less extensive ones otherwise. Since we know this $ when we plan our budget, it's always in our operating budget.

There's a four part test used nationally by reserves analysts to see if something qualifies & it must be a component that last longer than a year.

We have about 80 components and our highest study costs about$3500, so 5-7k sounds like a lot!

How big of an association do you have that you need to spend that much money on a study?

I would think that it's INappropriate to pay for that from reserves that are designated for actual maintenance and repair.

Whew--a beach & especially seawall makes your study pretty expensive especially for an onsite visit by the analyst.

Unfortunately, dues go up in our HOA very year. The lower level studies done in years 2 or 3 also are about $2,000 & $1,500 so the additional $ for the full study isn't that much of a boost--our budget for our twin towers is pretty big as it is.

Thanks Tim. That's helpful.

I would create an "operating" reserve account and deposit annually enough funds to capture the total study cost every 5 years. Therefore there is no spike in the fee to pay for the reserve study.

For what it's worth, our latest Reserve Study was performed by a local, professional engineering firm that, among other things, specializes in doing Reserve Studies. In the report there is a line item for "Reserve Fund Study Update" every 4 years with a cost for that study . . . meaning that we set aside funds in the Reserve Account to pay for the study every 4 years.

You can find opinions and interpretations to support either way of doing this . . . money coming from Reserve Account or from the Operating Account. Honestly I think you'd be hard pressed to find someone who would significantly object and with a substantial enough counterargument against putting money in the Reserve Account for this purpose. It's the method that makes the most sense to me, is financially in the interest of the HOA and its members, and is most palatable for homeowners since you're not having to adjust the operating budget (and possibly the annual assessments) every few years to offset the additional expense. Also, it makes sense for Boards that have potential to change ever 1, 2, 3 years. Having it in the Reserve Study/Account helps the changing Boards keep track of when it was done and needs to be done in the future.

Because of the cost of the study and the infrequency, there would be no harm paying from your reserve account. Have it added to the component list with an lifetime of 5 years.

Richard's approach makes sense for many Associations as it meets the four-part test, which is a national standard for reserves studies. #4 generally is .5% - 1% of the annual budget. In other words, there's no reason to clutter the study with inexpensive components.

• Test #1: The component must be a common area maintenance responsibility
• Test #2: The component must have a limited Useful Life (UL).
• Test #3: The component must have a predictable Remaining Useful Life (RUL).
• Test #4: The scope of work must be above a minimum threshold cost.