Maintaining a reserve fund for your Chicago condo association is important for the overall financial health of the HOA. Not only does it help ensure funding for future capital expenditures and deferred maintenance projects for common elements, but it also helps the association weather unexpected emergencies if and when they arise. If adequate reserve funding is not available when a significant repair is needed, the board may have to levy a special assessment to cover the costs.
As your board considers its budget and priorities, it’s imperative to think about short- and long-term planning.This is why all HOA budgets should include fund allocation for two main financial accounts – an operating fund (those that are for the daily, predictable expenses) and a reserve fund.
How Much Should Your HOA Save in Reserves?
While operating expenses tend to remain relatively predictable, it can be more challenging to determine how much in reserves an HOA should maintain. A best practice many associations follow is to conduct an annual reserve study.
The purpose of a reserve study is to forecast the estimated costs an HOA will encounter. This includes planning for aging infrastructure. Reserve studies seek to predict when certain areas of the property will be due for repair or replacement based on things like the age and condition of the building, its mechanical components, exterior structures, and other components that make up the common elements of the condo association. Additionally, the reserve study attempts to quantify the projected costs for the repair or replacement of such property so that the HOA can adequately save for them.
To learn more about budget requirements and relieve some of the stress related to budget planning, consider working with a condo association management company. For help here in the greater Chicago area, get in touch with our team at First Community Management.