Reserve Funding For An HOA

Diversified Association Management recommends that every homeowners association (HOA) have a Reserve Fund. A Reserve Fund (or Replacement Fund) is a monetary resource an HOA builds up and sets apart from their normal operating funds. It is intended to cover the expected expenditures of major repairs to or the replacement of common area elements that the HOA itself is responsible for maintaining. Colorado law does not require an HOA to partake in a reserve study, but Colorado law does require a HOA to write into their policies at what time a reserve study is to be completed, whether the HOA decides to have one completed or not. When contemplating the level of funding your HOA is willing to contribute to their reserve fund, consider the following: 
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• Does your operating budget afford you the ability to contribute to your reserve fund?
• If your operating budget does not give you the ability to fund your reserves, are you willing to impose a special assessment or secure a loan to cover significant reserve expenditures?
• Are you frequently using your reserve fund to cover operating expenses?
• At the end of the fiscal year, is there excess in operating funds that can be allocated to reserves to increase your reserve fund?

Not taking the appropriate steps early on to adequately fund your reserves can result in substantial increases to assessments, and in some cases the need to impose a special assessment to cover significant reserve expenditures in the future. Diversified Association Management can help its Board Members assess its budget requirements and coordinate a reserve study if advised. We take our job seriously to help our Board members make prudent, informed decisions to protect the financial condition and future value of the community.