Running a condo or co-op association is a lot like owning your own home, but on a much larger scale. Like with any home, needs for various repairs come up from time to time.
But unlike an individual homeowner, development managers can't just go down to Home Depot and buy what's needed to do the job themselves. Nor can they call a handy relative to come help them fix it. The responsibility of serving hundreds of residents means a job has to be done right, and in as timely a fashion as possible. That's where a capital reserve study comes in.
"[Reserve studies] are important because they assure the association that when it comes time to replace capital assets, which make up the common elements of the development, they will have the money to do it," says Mitchell Frumkin of Kipcon, an engineering firm in North Brunswick.
Capital Reserve Studies
A capital reserve study determines an estimate for the amount of money an association needs to have saved to conduct repairs of common areas.
"An engineer will assess the common elements of the community and put together a funding plan so that they can have adequate funds to replace items such as roofs, roadways, siding, lighting, things like that," is how Daniel Rush of Flannery Webb & Hansen, an engineering firm in Toms River describes a capital reserve study. "What the reserve funds do is put money in the bank so that when the things are due to be replaced…they have the money."