Estimating Your Reserves: How Much Does Your HOA Need to Save?

Keeping an emergency fund adequately supplied is a best practice for all homeowners, and the same is true for condo associations. Although an HOA’s reserve funds only go toward the repair and replacement of common elements rather than individual upgrades, their general purpose is not much different than your or my emergency fund. 

One thing that is different, however, is that in the case of HOAs, maintaining a reserve fund isn’t just a smart thing to do – it’s required by the law. 

How to Estimate Your Reserve Budget

Accurately funding your reserves is important for HOAs because it ensures you have enough cash on hand to cover emergency expenses (as well as planned projects) without having to levy a special assessment. But estimating your reserve budget can feel a lot like guesswork… until you gather a bit more data. Fortunately, there are places you can turn to for help. 

Conducting a Reserve Study

Per Florida Statute § 718.112, “reserves should be computed using a formula based upon estimated remaining useful life and estimated replacement cost or deferred maintenance expense of the reserve item.” 

Items to be accounted for in a reserves calculation include – but are not limited to – roof replacement, building painting, pavement resurfacing, and any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000. 

Now, to the average HOA board member, this may sound like a challenge. It certainly can be! To relieve the burden and gain an accurate reserve estimate, we advise our clients to hire a professional to conduct a reserve study every few years.

Professionals who conduct reserve studies for Florida HOAs analyze the long-term expenses a condo association is likely to encounter. Based on a complete analysis, the reserve study expert creates a schedule of expected repairs, replacements, major maintenance, and all other eventualities that may impact your condo association’s bottom line. 

Once these numbers are estimated, your board can then use the estimate to determine how much in assessments are needed to maintain the ideal level of reserve funds.

Maintaining a healthy reserve fund is essential for your Miami condo association to thrive. To ensure you are adequately budgeting for yours, we recommend partnering with a professional reserve study specialist and contacting our team at Dania Fernandez and Associates, P.A. Get in touch today to ask your questions and take a look at our website for dozens of other helpful resources for Florida condo associations.