Every well-managed homeowners association (HOA) relies on two primary financial tools to ensure long-term stability: the operating budget and the reserve fund. While the operating budget covers day-to-day expenses, the reserve fund is specifically set aside for the repair and replacement of major shared assets within the community.
What Is an HOA Reserve Fund?
A reserve fund is a dedicated pool of money that an HOA sets aside over time to pay for large-scale, generally non-annual expenses. These are typically capital expenditures, major projects or replacements that are too large to be covered by the regular operating budget. Unlike unexpected emergencies, reserve fund expenditures are predictable, often planned years in advance based on a thorough reserve study.
Key Components That Go Into a Reserve Fund
Reserve funds are built to support the long-term maintenance and replacement of common elements within the community. While the specific components may vary by community type (e.g., townhomes vs. condominiums), here are the most common elements that go into a reserve fund:
Roofs typically have a lifespan of 15-20 years. Reserve funds ensure that when the time comes, there’s money available for full replacement without issuing a special assessment.
Driveways, parking lots, and private streets require periodic resurfacing, sealcoating, and eventual repaving, often one of the largest line items in a reserve fund.
This includes items like siding, gutters, shutters, balconies, and masonry, all of which wear over time and require large-scale upkeep or replacement.
Pools, clubhouses, tennis courts, and playgrounds all need long-term maintenance. Reserve funds cover resurfacing, equipment upgrades, and structural repairs.
Communities with perimeter fencing or gated entry systems need to plan for eventual repair or replacement, especially when automation or access systems are involved.
This might include HVAC, elevator systems, fire suppression, or plumbing infrastructure, particularly in condo or high-rise associations.
Entrance monuments, community signage, street lights, and pathway lighting can be costly to repair or modernize without reserve planning.
While routine landscaping is typically covered by the operating budget, major tree removal, irrigation system upgrades, or retaining wall replacements often come from reserves.
How Reserve Fund Contributions Are Determined
Reserve contributions aren’t just arbitrary numbers, they’re calculated based on a professional reserve study, which evaluates:
The goal is to build a steady, predictable funding path that spreads out contributions over time and avoids large, one-time special assessments.
In addition to regular contributions from homeowners, many HOAs earn interest on reserve accounts, which can provide a modest but helpful supplement to overall funding. Reserve funds are typically placed in secure, interest-bearing accounts such as money market accounts or CDs, and the earnings generated help offset future funding requirements. While the interest rates may not be high, over time, the compounding effect of interest can meaningfully contribute to the reserve balance, especially in well-funded associations.
Another best practice is to transfer surplus funds from the operating budget into reserves at the end of a fiscal year. If an HOA comes in under budget; due to cost savings, efficiencies, or lower-than-expected expenses, boards may vote to reallocate those excess funds to the reserve account. This not only strengthens the reserve position but also demonstrates prudent financial management to homeowners and auditors. However, HOAs should first consult their governing documents and financial professionals to ensure these transfers are permissible and properly documented.
At Building Reserves, we partner with HOAs to identify, assess, and plan for every component that should be factored into a strong reserve fund, whether it’s roofing, roads, mechanical systems, or the strategic use of interest income and excess operating funds. Our team delivers clear, actionable reports, region-specific guidance, and tailored funding models to help boards take control of long-term financial planning. With accurate data and experienced guidance, your HOA can keep reserves adequately funded, minimize financial setbacks, and confidently plan for upcoming capital improvements.
Written by James Newby, Architectural Engineer
