Common FAQs about Reserve Study for Easy Reference

reserve study
reserve study

Reserve study, or also known as a reserve fund study, is a popular term among long term asset owners such as those who own buildings, condominiums, etc. but nowadays, even homeowner associations are frequent clients. It is an in-depth study of the property’s components like painting, upkeep, landscape, and anything that needs maintenance regularly.

If the term “reserve study” is still strange to you, read on to know more about it.

Common FAQs about Reserve Study

FAQ #1: What are the components of a reserve study?

Although there are a lot of reserve study service providers nowadays with varied add-on components, at the core, a professional reserve study entails a financial plan and a comprehensive assessment of the properties. Ensuring reliability and compliance, the study will look into parts of the property that may have to be repaired or replaced, and determining when that repair or replacement should be carried out. All will be discussed to determine the cost that the property owner will need to reserve to maintain the value of the property.

FAQ #2: Who should we hire for a reserve study?

Contrary to the claims that a reserve study can be carried out by just anyone who is willing to do it since the data to be handled is crucial to maintain the property’s value, experts say it is best done and must only be done by a professional specialist, more so if the property is a sophisticated one.

FAQ #3: How do you identify what components should be present in your property’s reserve study?

Your service provider will most likely begin the job by discussing with you your goals and purpose of having a reserve study. As the owner who is most familiar with the property, you will be asked to list the common elements of the property that you think should be covered in the study. Moreover, the pecialist will inquire to you about your maintenance budget or if you have one, to begin with.

After the meeting, you will be requested to hand a copy of the bylaws and property declarations where all the common elements of the property are most likely listed. From there, your specialists will be looking into the documents and will give you an initial list of property elements that the study will cover, including each’s remaining lives and maintenance requirements.

FAQ #4: When is the right time to have a reserve study done for my property?

Ideally, you should start four months before the start of the new financial year unless yours is not a commercial property, you have the fund to do it, and you have no board to approve your decisions.

FAQ #5: Is reserve study really necessary? Why does it have to be done?

It is required by law to submit an updated one every year to ensure a relevant and up-to-date costing. For instance, if the oil price has rolled back, then the price of the asphalt budget in the reserve study for the roadway repair has to be changed. And this should be taken into account to ensure that the reserve fund will not fall short at the crucial time it is needed.

Now, why is a reserve study necessary? Being a board member or owner of your business or your property, you normally bear with the weight on your shoulders when it comes to allotting funds for necessary repairs. Without it, being unprepared might end you up applying for loans just to fund the upkeep. Meanwhile, if you conduct a study, you will be able to gain confidence knowing your property can withstand any storms and will retain its value.

  • Here are specific reasons why it should be done for your property: You have to be always financially prepared for the upkeep and the necessary repairs. Based on a study, if you own a commercial property, 10% to 40% of your total annual budget should be allotted to your reserve fund. But the findings will ensure that your budget is relevant and with basis.
  • You have to save proactively. It may look like an unnecessary component of your budget but the fund will actually help you withstand future challenges.
  • You have to know how much raise should be reflected in your reserve fund. What you have in your current fund may differ from what you had from previous years but this lack in the estimate can totally turn as a downside. Meanwhile, if you have an annual reserve study done, you will be able to foresee which projects have to be realized first and how much you will need for your other projects.

Ignoring your present financial status can cost you a lot in the future but if you conduct a reserve study, you will be able to spot which areas were miscalculated and what enhancements you can do in the future to eradicate their likelihood of reoccurring.

FAQ #6: How much does it cost?

Most reserve study specialists charge a reasonable price for their service. Averagely, the study for the first two years that will only need an update will cost around $400 to $600. In the third year, however, the price may go up ranging from $1,200 to $1,800 inclusive of a specialist’s series of onsite visits.

FAQ #7: What happens if I skip it?

Unfortunately, there is this so-called “domino effect” that can potentially take place if you decide not to have a reserve study done for your property. There will be less update about the property’s state and you will find it hard to sell the property at an optimum.

FAQ #8: Do I have to act on the results?

The law will not require you to follow the recommendations from the conducted reserve study. You will most likely be required, however, to adhere to raising the needed reserve fund.