It is very important for homeowner associations and condominiums to ensure that their property and building components are performing at their best cost-efficient condition. If not, preventive maintenance and different ways to get same or even better performance at reduced costs are some of the benefits of conducting reserve study for condominiums. Let us have a detailed look at the importance of reserve studies.
Creation of Successful Condominiums
Two of the most important aspects of a condominium are its physical assets, like structures, buildings, land on which condominium is situated and financial assets that are the funds required for maintaining these tangible assets. For a condominium to succeed, it is crucial for them to have funds that can fulfil the maintenance needs of the property. Inadequate resources can have an impact on the condominium’s overall condition and can deteriorate it to a great extent over time.
With the help of reserve study, condominiums can improve the value of their financial and physical assets by analyzing the overall financial structure of the condominium.
Importance of Reserve Study
All buildings and properties are different concerning the materials that are used in their construction, their current condition and the number of common areas. To come up with the sum required for their maintenance, it is crucial to run accurate calculations. For instance, if the condominium has a pool, fitness center or a clubhouse, it will require increased reserve fund requirements.
Moreover, apart from scheduled maintenance, there are also surprise structural crisis or maintenance problems that can have a significant impact on the reserve funds of a condominium as most of the times, these expenditures are massive.
Reserve study for condominiums is a multi-faceted tool which allows associations to predict total cost and year of repair and maintenance of every building. With the help of these studies, recommendations will be provided to improve the annual reserve fund contributions that can adequately balance all the scheduled and surprise expenditures.
The Reserve Study
A successful Reserve study for condominiums is divided into several parts which are then analyzed to provide accurate calculations and recommendations. Some of the most important parts of these studies are-
- Component Inventory- This inventory is a listing of all the reserve items and physical assets of the condominium.
- Condition Assessment- This part of the study deals with evaluating the current condition of all the physical assets of the condominium.
- Valuation and Life Assessment- This is an estimation of the total life expectancy of the tangible assets along with the maintenance and replacement costs.
This information is collected and then used to conduct a financial analysis of the condominium. For instance, if there is a physical asset which will require replacement after 15 years and the total cost of replacement will be $45,000, then the association will be required to increase the reserve fund by $3,000 every year, which will amount to $45,000 at the end of 15 years. In this way, ideal reserve funds are determined for every physical asset in the condominium.
Once the total ideal reserve fund is created, it is then compared with the actual reserve fund. If there is a difference between the ideal and actual reserve fund, funding plans are developed to cover these expenses.
It’s the financial assets of a condominium that determine the current and future condition of the physical assets. This makes a reserve study such a necessity for every condominium as they help in ensuring that your association always has the required funds for all the scheduled and emergency repairs and replacements.