Managing Your Reserve Fund Keeping it Healthy in Today's Tough Economy

In today's harsh economic times, maintaining a healthy reserve fund is more important than ever. A community association’s reserve fund can be used to cover any number of emergency expenses from sudden repairs to legal costs. In addition, a reserve fund can be used for ongoing maintenance projects or for anticipated future repairs.

How Much is Enough?

Though a robust reserve fund is highly desirable, there is too much variation in properties to have one specific formula to calculate how much money should be in a community’s reserves – at least not one that works across the board. That said, there are some rules of thumb and guidelines that boards can use to determine a healthy amount to keep in reserve. One way to get a sense of what your condo or association should have in reserve is to look ahead at the building’s needs. Conduct a survey to determine what systems might need to be replaced and what repairs might be necessary over the next five years.

Many times, surveys are done by qualified engineers who generate projections of cash amounts the building will need to put aside in the next one, two, five and ten years for that new roof, siding or furnace. These findings are typically bundled into a report prepared by the engineer called a “reserve study.”

Despite the usefulness of current reserve studies, many communities are stuck with outdated studies that are not that useful in generating precise repair or replacement costs, says Marie Shepherd, CPA, and a partner in Graham, Huckins & Shepherd, PC, in Worcester, Massachusetts.

“A lot of condos have very old reserve studies – especially considering the changing economic conditions and pricing of things,” says Shepherd. An updated study, Shepherd notes, would reflect recent fluctuations in the prices of labor and materials.


Related Articles

Budgeting in a Changed Landscape

Making Predictions for the Unpredictable

The Importance of Robust Reserves

Don’t Get Caught Short

What to Do About HOA Finances & Assessments During Coronavirus

How Associations Should Respond



  • Do you know if a board can legally spend reserve funds on capital improvements? Thanks in advance.
  • Is a bond fund or an income fund a good idea for reserve investment? I am looking at a bond fund performance since 1983 and it has performed in spite some ups and downs. Given the long time lines of targeted expenditures it seems wise.
  • Our HOA is 87% funded. Our club house has been in existence for 10 years and is in need of an update. Our reserve fund has dates identified for such replacements but they are in the future. Is it appropriate to use money from the reserve fund to do these improvements now/ at a significant savings due to the economy or do we have to wait/ We are in Arizona
  • Be advised that some Board of Director's of HOA's are keeping the Reserve Fund in a simple savings account, accessible by them and not in a "trust fund", where it requires a majority of the owner's to allow expenditures. Some are spending this money on foolish items. The board members CAN BE HELD ACCOUNTABLE IN A LAW SUIT IF THEY "KNOWINGLY, WILLINGLY AND FLAGRANTLY" SPEND FOOLISHLY, even though the CCR's and By-Laws indicate they cannot be held individually accountable. I, as an individual owner in an HOA, just sued our Director's & their Attorney in Federal Court and WON!!! Including Punitive Damages. I put the money back into our TRUST FUND.
  • Barbara - Assume decision is the board's. Would think it would be advisable to update now if for no other reason that any money in reserves is certainly not earning much interest now. But is also dependent on how much is in reserves and what other items have priority
  • Is it appropriate for trees or landscaping to be paid out of reserve accounts?
  • Our HOA has $142,000 in Operating, but only $81,000 in reserves?
  • can a treasure of a coop board unilaterally remove $250,000 from the reserve wthour board's approval:
  • What Reserve amount is good for HOA, 29 homes with 900 annual dues, has no amenities only landscaping?
  • Treasurer of our board seeks to invest in bond funds for over $100K. Is this investment insured by FDIC? The money would come from reg savings which is separate from surplus.
  • I belong to a HOA in Florida where the developer control the association since 1987. He had completed 97% of the construction project and we do not have any representation from the residents. He used the reserves without the residents participation. Is there any legal remedy. Can the DPBR and the State attorney be involved? I appreciated any idea.