If you reside in an HOA, you should be aware of the monthly fees and payments required by the board. This fee is collected to maintain the HOA amenities, such as repairing street lights, park benches, replacing tennis court nets, etc. There are actually two kinds of HOA funds- the operating fund and the reserve fund.
The money from the operating fund is used for the maintenance of community assets and daily requirements. So, where does the money in the reserve fund go? It is essential to understand where your hard-earned money is being spent. If your HOA needs assistance in reserve fund planning, you can contact Phoenix HOA management companies.
What Are HOA Reserve Funds?
While operating funds are used for frequent repairs and replacements, reserve funds act as a savings account for the HOA. Some percentage of the monthly dues collected from the homeowners go into the reserve funds. This can vary for different HOAs; however, the amount is mostly 20 to 40 percent.
Reserve funds, as is suggested from the name, is money reserved for emergencies and sudden expenses. For instance, if a tornado causes damage to the public amenities, the money from the reserve fund will be used for repair so that the HOA board does not have to charge extra money from the residents.
Some other uses of reserve funds are as follows:
- Construction and renovation projects.
- Repairing damage after natural disasters.
- Major landscaping projects.
- Fencing projects.
- Roof replacements.
- Construction of a new amenity such as a park or playground equipment.
The primary difference between a reserve fund and operating funds is that reserve funds are used for expenses that do not occur regularly.
How Much Reserve Fund Do You Need?
There is no fixed estimate of how much reserve fund each HOA should hold. This greatly varies depending on the number of amenities and assets and the condition of these assets. To determine the number of reserve funds needed, the HOA board should conduct a reserve study.
A reserve study includes the inspection of your HOA assets, buildings, and finances to come up with a long-term schedule of potential costs. A reserve study should be conducted every 3 to 5 years by a professional because many factors may affect the lifespan of your assets. Therefore, you may need to make changes to the schedule.
Reserve Funds Are Beneficial
Reserve funds can be beneficial for both expected and unexpected expenses. It helps the board prepare for massive and sudden expenses that require a good amount of money. This money is collected monthly from residents and reserved and only used when the necessity arrives. If reserve funds are not there, the board will have to ask for extra charges from the residents, which may upset some people. For more information visit this site: 300mbmovies