Capital Reserves

What are capital reserves for an HOA?

Capital reserves (also called reserve funds) are funds homeowners associations (HOAs) keep on standby to pay for large renovations to parts of the community that deteriorate over time. This includes jobs like resurfacing pools, updating the community clubhouse, etc.. An HOA may also use the money to pay for major damage caused by a natural disaster. The funds are kept in a savings account and aren’t used for day-to-day maintenance or operating costs. Part of each homeowners’ monthly dues go to the fund to ensure the community maintains a financial cushion.

Why are capital reserves important for HOAs?

Every HOA must establish and manage financial reserves to protect community property from deterioration and ensure its long-term success. Doing so maintains property values and keeps the HOA from having to resort to special assessments–– which are charges levied on homeowners to pay for unexpected repairs.

Many states require HOAs to conduct reserve studies and maintain reserve funds.

Healthy reserves also make it easier for an HOA to plan for future renovations. Performing a reserve study adds another level of assurance. This process involves an expert inspecting the shared property to determine the lifespan of major components. The results of the reserve study inform how much money an HOA potentially needs in their capital reserves. This provides peace of mind for board members and homeowners.

How can you use “capital reserves” in a sentence?

The HOA’s capital reserves are healthy, so they’re going ahead with the clubhouse and pool renovations.