Making the Case for Reserve Studies Knowing What's Ahead

In the archives of sound financial advice, saving for a rainy day is a titan, right up there with never bet your last dollar on a horse race, or any other sage old saying. For the good health of any organization, having enough cash in reserve to handle just about any and all problems is imperative. Knowing how much you will need for that rainy day provides even better protection.

That's where reserve studies come into the picture. In the most basic terms, these studies let boards and associations know when elements common to an entire co-op or condo community must be repaired and replaced, and provides an estimate of how much that work will cost. It also includes a plan for how to pay for those repairs by giving an estimate of how many dollars need to be set aside each year to meet pre-determined levels of funding. The money that is put aside is called a reserve fund.

"Reserve studies provide associations with a tool they can use to plan for the future," says Nancy Hastings of MAMCO Property Management in Mt. Laurel. "Getting a reserve study done forces boards and management to take a detailed look [at the future] so there aren't any surprises and no need for special assessments."

The Nuts and Bolts

There are two types of reserve studies: initial and update. As the name suggests, an initial study is the first study done and these days, is most often performed before a community is even built. Update studies are usually done every three years or so after the initial study is completed.

The first step in getting an initial reserve study done is for the association to solicit proposals or quotes from reserve study professionals. At this point, "It's important to make sure the request for proposals accurately reflects what the board or association is looking for," says Mitch Frumkin, reserve specialist and president of Kipcon, an engineering consultant in North Brunswick. "It's important to ensure that the study is in compliance with both national reserve study standards and any statutory requirements."


Related Articles

Capital Reserve Funds

How Much Do You Really Need?

Tapping Reserves in a Time of Financial Crisis

An Option to (Carefully!) Consider

Capital Improvements

Getting Financing and Board Approvals